Asian Insights

Jackson Hole – Takeaways for Asia
Three important implications emerge for Asian policy making following the Jackson Hole event.

• First, the developed economies will persist with a more stringent pace of monetary than expected. Second, a more complex global environment is making it difficult to design monetary policy which is becoming less effective. Finally, the US Dollar has strengthened even more following the event.
• The net result is that there is more pressure on Asian central bankers to follow suit even if the downside risks to global growth have intensified:

Dollar strength has peaked, but this is not the end of it
Tracing the trajectory of the Dollar requires an understanding of where the US economy is in the current cycle, the inflation trajectory and the Fed’s plans for tightening.

• A US recession is not our baseline scenario , going by the bevy of bottom-up indicators which paint a rosy picture of consumer spending, factory orders and labour market conditions.
• Peak inflation is finally in sight, but watch for services inflation. There has been a handoff in goods inflation toward that of services, particularly shelter, which is more inertial and sticky. New leases are already up 25% since Feb 20, while average rents are up just 10%, suggesting a reckoning on the cards for shelter inflation with a lag.