Jackson Hole was on optimising the tools in the central bank arsenal

Market movers today

• Today, focus is on the US PCE inflation figures. The Fed's preferred measure for core inflation – PCE core inflation – is due for release and we estimate the index rose 0.1% m/m in July, implying an unchanged core inflation rate of 1.6% y/y. The figure has been around this level in 2016 up from 1.3% y/y in mid-2015. It is thus closing in on the Fed's inflation target of 2% but so far it is not there yet. Core CPI inflation has been above 2% for nine months.

• Later this week, the US labour market report is due for release and based on the latest Fed communication it will be very important for the Fed's rate decision (see below). We expect job growth of 175,000 in August. This is below the prints of the past two months but still above the amount needed for labour market slack to come down. Last week, Janet Yellen specifically refereed to the 3M average for job growth. Hence, it seems to be the most appropriate measure to look at when judging how the Fed evaluated employment growth. Overall, the probability of a rate hike this year has clearly gone up and we will review our own forecast of a hike in June 2017 after the job report on Friday.

• This week, there will also be focus on the euro area inflation figure for August. In Scandinavia, KI in Sweden is due to publish its forecast for the Swedish economy while the Norwegian GDP figures for Q2 should show growth of 0.3% q/q.

Selected market news

At the annual meeting of central bankers in Jackson Hole, Janet Yellen echoed other Fed members, saying that the case for an increase in the rate had strengthened recently. The key phase from Yellen's speech was ‘in light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months. Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee's outlook'. Following Yellen's comment, Vice Chair Stanley Fischer said her remarks were consistent with a rate move already in September.

Over the weekend, the Fed's Loretta Mester repeated her hawkish stance and described the case for another rate increase as ‘compelling'. She said the trends for employment and inflation are in the right direction while the US economy has ‘proved itself resilient through a number of shocks'. She declined to give an answer on the decision at the meeting on 21 September but in line with Yellen she said she wanted to review all economic data.

Otherwise, focus on Jackson Hole was on optimising the tools in the central bank arsenal. The Bank of Japan's Haruhiko Kuroda said ‘we will act decisively' and ‘the bank will carefully consider how to make the best use of the policy scheme in order to achieve the price stability target'.

The ECB's Benoît Coeuré repeated, ‘we will fulfil the price stability mandate' while also emphasising ‘if other actors do not take the necessary measures in their policy domains we may need to dive deeper into our operational framework and strategy to do so'.

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