What is the future of the global economy? Warning from Rocky Mountains August 29, 18:37

On August 22, a summer resort in Wyoming, western United States, overlooking the Rocky Mountains. A symposium was held in which central bank executives and prominent economists around the world exchanged their opinions on vacation. This time, the relaxed atmosphere of the year is completely different. Is the financial market upset by the trade war between the US and China a sign that the world economy is going into a recession? And in preparation for this, will the central banks in each country decide to cut rates? To get the clue, the world's media rushed into a quiet summer resort. Read and understand warnings from the base of the Rocky Mountains. (Washington branch reporter Yosuke Yoshitake)

Jackson Hole Conference

An economic symposium held every year since 1978, commonly known as the Jackson Hole Conference. Jackson Hole is the name of this area, and the name is derived from the valley overlooking the Rocky Mountains. It is known as a summer resort in summer and a resort where you can enjoy skiing in winter.

The symposium is attended by senior central bank executives and prominent economists to discuss global economic issues. On the first day (August 22nd), while the cool breeze was blowing, I turned the microphone toward the participants who enjoyed dinner in a relaxed atmosphere. When they stood in front of the camera, they turned into a harsh expression, and there were a series of opinions that could be said to be a concern and warning for the world economy.

“I am very concerned that the US-China trade friction will further accelerate the slowdown that has started in the American manufacturing industry.”

“If the US and China are in recession, the global economy will be in recession.”

The biggest concern among the participants was the rush of intense tariffs across the United States. The protracted conflict between the two major economic powers in the world is getting worse.

Raging August

The world shocked on August 1st, three weeks before the Jackson Hole meeting. It was an announcement of a sudden tariff increase by President Trump.

Since this measure includes many household goods made in China that are widely spread in the United States, there is growing concern that not only China but the US economy can be intact.

On the 5th, China was recognized as a currency manipulation country for the first time in 25 years because of a sense of caution against the depreciation of the yuan. The Dow average stock price dropped by $ 960 at one time, as the conflict between the two countries was uncertain.

The effects of the trade war between the United States and China spread all over the world, and on the 14th, it became clear that Germany's GDP in April-June fell into negative growth. In the bond market, a phenomenon called “reverse yield” occurs when the long-term interest rate falls below the short-term interest rate.

Last time, the information that December 2007, before the Lehman shock occurred, was the cause of this phenomenon.

A man who is hunted down

In Jackson Hole, there was a man who felt bitterly about the upset financial market. Mr. Jerome Powell, chairman of the Federal Reserve Board of the United States, said to be the command tower of the world economy.

Chair Powell decided to cut rates for the first time in 10 and a half years on July 31. It was a measure to prevent a slowdown in the economy, given that corporate capital investment has been declining due to prolonged US-China trade friction. Still, employment was cautious about further rate cuts as consumption was good.

However, the day after deciding to cut rates, President Trump launched an increase in tariffs on China, and investors began to expect additional rates from Powell.

President Trump also demanded that “a drastic rate cut of 1% is necessary,” and pressure is only getting stronger. Powell siege was narrowed.

What does President Powell say in his lecture on the 23rd? The biggest attention of this Jackson Hole meeting was focused on the remarks.

In his speech, Chair Powell said, “The economic situation has changed significantly over the past three weeks,” he said. After that, he expressed that he will take appropriate actions to expand the economy. Even if the word “additional interest rate cut” is not used, it shows the possibility of the possibility, and the desire to calm the unstable market was included.

Just before the talk, the Chinese government announced countermeasures against the US, so the Dow average share price fell by about $ 100, but Powell's remarks were positive and the share price picked up.

Monetary policy no longer limits

However, as soon as I thought that Powell had followed the goal, the situation suddenly changed. The afternoon of President Powell's talk, President Trump repulsed China's countermeasures and tweeted that it would “raise tariffs to 30%”.

When I was at the hall of Jackson Hole, I suddenly rounded my eyes.

After all, on this day, Dow's average stock price declined $ 700 temporarily. President Trump's move to stabilize the financial market was once again blown away by President Trump.

President Powell, who was swayed by President Trump's interest rate cuts and hard trade policy, said in his talk:

“It's the government and parliament's job to decide trade policy. Monetary policy is a powerful tool to support consumption and investment, but it cannot provide a rulebook for international trade.”

“Monetary policy alone has its limits”
President Powell's resistance to the unusual intervention of President Trump in monetary policy. I heard that.

Did President Powell's warning reach President Trump's ears? The confrontation between the two, which determines the future of the global economy, cannot be seen.

An intelligent giant talks about the beginning of a recession

The stormy August. Concerns about the future. Where is the global economy going? I asked Professor Lagram-Rajan at the University of Chicago for an answer.

Mr. Rajan, who was the head of the central bank in India until 3 years ago. He is known as a “giant of knowledge” who is known for foretelling the dangers of subprime mortgage products that created the cause of the Lehman shock during the IMF economist era. Rajan criticized the current conflict between the United States and China.

"Two leaders are the Zhang who caused the current situation. They can't be withdrawn. I don't even know that what they are doing is bad for the global economy, I have no determination

When asked about the possibility of the global economic slowdown triggered by the friction between the United States and China and how to deal with it, he replied in a polite tone.

“If we look at a serious economic crisis, we will stop fighting each other and recognize the effectiveness of cooperating. A serious crisis is an opportunity to rethink the inability to trust policy makers, It will return to a better path. ''

(Do you mean you have to experience a serious crisis?)

"I don't think so and I think there is a better way, but a crisis to bring the world to unity may be necessary."

How to deal with warnings

On September 1, the United States will launch additional tariffs on China.

After that, the European Central Bank, the Bank of Japan, and the FRB also hold a series of meetings that determine monetary policy for each central bank.

The United Nations General Assembly where leaders from each country gather in late September. And the deadline for the UK to leave the EU = European Union is approaching the end of October.

How do political leaders face warnings from the Rocky Mountain summer resort? Can the global economy avoid the stall? It is on the brink.

Washington branch reporter Yosuke Yoshitake

He joined Nagoya Bureau in 2004 and was in charge of finance, the automobile industry, etc., from this summer.