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[Quick Facts]

1. U.S. oil rigs count falls to an 18-month low.

2. BOJ: Japan's low inflation supports the central bank's monetary policy framework.

3. Lagarde says the ECB will set higher interest rates as needed.

4. BOE: U.K. interest rates need to stay high for a while.

5. Fed's Powell says the Fed will raise rates when necessary.

6. Fed's Mester says a more rate hike may be needed.

[News Details]

U.S. oil rigs count falls to an 18-month low

Baker Hughes data showed that the number of active oil rigs in the United States decreased by 8 to 512 in the latest week. This brings the total number of oil rigs to a new low since February 4, 2022. A decline in rigs is usually seen as an early sign that production is starting to fall, but so far it has been the opposite this time, with U.S. oil production hitting its highest level in more than three years last week at 12.8 million barrels per day. Some analysts said the increase in production is partly due to the higher productivity of rigs. Natural gas rigs are also declining, falling by two to 115 in the latest week, the lowest in 19 months.

BOJ: Japan's low inflation supports the central bank's monetary policy framework

During a panel discussion at the Jackson Hole annual meeting, Bank of Japan (BOJ) Governor Kazuo Ueda said that Japan's inflation remained below target, which was supportive of the central bank's current monetary policy strategy. Japan's CPI excluding food will slow over the remainder of 2023. We believe domestic demand remains on a healthy trend, although this needs to be tested with third-quarter data, Kazuo Ueda said. Japan faces the risk of not being able to attract those mega-companies ( to invest in Japan). He cited relative strength in the U.S. economy as providing "some offset" to Japan. Kazuo Ueda did not comment on the exchange rate in his speech.

Lagarde says the ECB will set higher interest rates as needed

The European Central Bank (ECB) will set interest rates high enough and keep them there for as long as necessary to fight inflation, ECB President Christine Lagarde said in a speech at the Jackson Hole meeting on Friday. It will be crucial to keep inflation expectations firmly anchored and stable, which requires multiple steps to enhance the effectiveness of policy.

The ECB will rely on data and make decisions on a meeting-by-meeting basis. Especially the higher structural investment needs will make the economic outlook harder to read. In the labor market, the ECB will pay close attention to wage developments.

Lagarde did not reiterate her earlier prediction that the decision on September 14 could be a rate hike or a pause.

BOE: U.K. interest rates need to stay high for a while

The Bank of England (BOE) will have to keep interest rates high for a longer period of time because inflation will not subside as quickly as it spiked despite the recent fall in gas and producer prices, BOE Deputy Governor Ben Broadbent said at the meeting on Friday. The key question for policymakers is how quickly the falling cost of imports will affect domestic pricing behavior. His conclusion was that it will not be fast, potentially taking longer than the 18 months to two years to get embedded.

It's unlikely that these second-round effects will unwind as rapidly as they emerged. As such, monetary policy may well have to remain in restrictive territory for some time yet. Headline inflation will fall "over the next few months" and UK living standards will start to improve. Broadbent acknowledged the policy risks. "There's a risk that we've underdone this and may have to do more. But there's also a risk that we've done too much already," he said.

Fed's Powell says the Fed will raise rates when necessary

The Federal Reserve stands ready to raise interest rates further if necessary because the progress made in reducing inflation, though encouraging, is far from enough, said Fed Chairman Jerome Powell on Friday. There is still quite a way to go before price stability is restored.

It's good to see inflation falling, but not fully confident that price pressures will continue to fall to achieve the Fed's 2% inflation target. After all, core inflation excluding food and energy prices is still more than twice the target.

Powell warned that past rate hikes have not yet fully slowed economic growth down, which is a reason to keep rates unchanged for now, although stronger and sustained growth may require higher rates to keep inflation down. We will proceed cautiously in deciding whether to tighten monetary policy further or leave policy rates unchanged, waiting for further data.

Powell's speech suggests that he is trying to find a path between slowing hiring, investment, and spending to bring down inflation without taking too many restrictive measures that could cause an unnecessarily severe economic slowdown.

Fed's Mester says a more rate hike may be needed

The U.S. may need to raise interest rates one more time to beat inflation, and then stay on hold "for a while," said Cleveland Fed President Loretta Mester in an interview on the sidelines of the Jackson Hole Symposium on Saturday. She also added that she may reassess her earlier view that rate cuts could start in the second half of 2024.

While not looking to tighten policy to the point of causing the economy to collapse, she wants to set policy to bring inflation down to the Fed's 2% target by the end of 2025.

U.S. economic growth has been stronger than many expected, and its labor market remains tight. The Fed's rate hikes will moderate the strong momentum on both fronts. Nonetheless, it needs to be cautious about assuming inflation falls back to 2% in time. U.S. inflation has fallen to 3% from a peak of 7% last year. I don't want to ease policy prematurely, Mester said.

[Focus of the Day]

UTC+8 20:00 Bundesbank President Nagel, Spanish Central Bank President Hernandez de Kos, Austrian Central Bank President Holzmann and Dutch Central Bank President Klaas Knot deliver speeches