The Jackson Hole meeting kept its promises: the markets know what to expect regarding the main lines of the US Federal Reserve's monetary policy. Asset purchases to support the economy will be reduced before the end of the year--the Fed is currently on a pace of $120bn per month--and a status quo on key rates will be maintained until 2023. In short, the Fed will remain very accommodating. These announcements were well received by the markets, with volatility remaining very low.

However, traders remain attentive to changes in monetary policy. This was evidenced by the slackening of the European markets on 31 August following the statement by the governor of the Austrian central bank, Robert Holzmann, who said that the time had come for the European Central Bank (ECB) to consider reducing its asset purchases under the emergency pandemic programme (EPP).

The debate is between two camps within the ECB, those who favour a return to monetary policy orthodoxy on the one hand, and those who favour continued support for the economy on the other. Analysts expect the current compromise to continue, as the ECB seems to have less room for manoeuvre than the US to reduce its support for economies. Neither the PEPP nor the "traditional" purchase programmes should therefore be challenged.

As for a rate hike, nothing is expected before 2024 or even 2025. To relieve banks suffering from the effects of a decade of low rates, the ECB should continue its TLTRO programme of ultra-favourable giant loans that banks can take out with it and its "tiering" system, which exempts part of the reserves held by banks with the ECB from negative interest rates.

However, some central banks have crossed the Rubicon and are restricting their support for the economy, mainly in emerging countries, such as China. South Korea's central bank has just raised its key interest rates--for the first time in three years--in order to prevent its economy from overheating and to counteract the current sharp rise in property prices.

Recovery and the risk of bankruptcies

The strength of the economic recovery is pending the rapid spread of the Delta variant, which is influencing projections. The impact of this resurgence of the pandemic should weigh more heavily on emerging countries, which are lagging behind in their vaccination policies, than on developed economies.

Inflation remains a topic in its own right. While most analysts, led by the Fed, believe that inflationary surges are temporary, the markets are wondering whether this "temporary" rise is not the precursor of a fundamental trend and whether the monetary authorities can keep control of it.

The fluctuations in commodity prices give substance to these questions. The downturn in industrial metals is due to the reduced dynamism of the Chinese economy. The fall in oil prices is linked to the political will of OPEC, a resumption of production and lower than expected consumption in the US. Only food commodities remain on the rise, mainly due to the weather conditions of recent months.

Another hot topic is corporate debt, especially that of SMEs, which have received massive government support in the face of the pandemic. The evolution of the bankruptcy rate will be particularly scrutinised. An increase above the pre-pandemic average could jeopardise economic recovery. Restructuring of state-guaranteed loans is beginning to be discussed. This is particularly the case in France.

Introducing Basel III

Finally, the regulatory agenda is also back in the headlines: the Basel III agreement, signed in December 2017, will see its transposition process begin in September, with the European Commission submitting a legislative proposal. The aim of this new version is to increase the resilience of large international banks by strengthening the level and quality of capital and reinforcing risk management rules.

European banks fear that the new rules will cost them a lot in capital, impact their ability to finance the economy and widen the gap in financial and stock market performance with their US rivals. The Basel III rules are scheduled to be phased in from 2023.

This article was originally published in French on . It has been translated and edited for Delano.