US and Russian economies - in the spotlight

London Business School’s Vania Stavrakeva appeared on the Bloomberg Surveillance programme, talking to Paul Sweeney and Alix Steel on August 23. Dr Stavrakeva was first asked what Fed Chair Jay Powell might say at his speech at the Jackson Hole symposium.

Dr Stavrakeva said she did not believe it would be a speech in which Powell will want to “stir financial markets by surprising them in either direction”.

“We have the US elections around the corner and he wouldn’t want to appear to be overly political, even more so given Trump’s threats to the Fed’s independence,” said Stavrakeva.

“So, it might be one of those instances where Powell puts much more weight on average market expectations then normal. There is an average market expectations of an interest rate cut, so if he says anything about interest rates it will probably consistent with 25 basis points.”

As to broader economic forecasts from the Fed chair, in terms of forward guidance on GDP and inflation, Stavrakeva said that she didn’t believe that much would be revealed. “On the one hand he does not want markets to excite expectations in terms of policies, up or down, for fear of generating massive movements”.

Referring to the US election and the policies of the two candidates, Stavrakeva said that essentially, she saw two quite different policies in play, “so it is hard for the Fed to forecast what is going to happen over the next year”.

Acknowledging the need to avoid concrete views on where the economy is heading, Stavrakeva said she felt Powell would focus on the effectiveness of monetary policy, and also talk about fiscal monetary policy.

Later in the day at Jackson Hole, Powell said he expected the central bank will cut its key interest rate in the near future in response to slower economic growth and cooling inflation.

Asked about her views on the Russian economy, and news from the International Monetary Fund (IMF) that the organisation expected Russia to grow 3..2 per cent this year, significantly more than the UK, France and Germany, Dr Stavrakeva said that the higher growth was associated with higher inflation and the country’s fiscal expansion. and significant investment in the miliary.

Dr Stavrakeva thought the interesting developments lay ahead, with the eventual impact the Biden Administration’s release of expanded Treasury's tools in December 2023, designed to disrupt and degrade Russia's “war machine” by authorising Treasury to impose sanctions on foreign financial institutions for aiding Russia's military-industrial base.

With the ban on the provision of credits to Russian oil companies, and restrictions on the country’s ability to secure finances from Chinese, Indian, Turkish and Chinese banks, Russia has been investigating barter transactions with countries like China. These would prove difficult to implement said Stavrakeva.

“We will have to wait and see how binding and restrictive these sanctions are, and if they will have a bigger bite than what we’ve seen so far. Certainly, the Ruble hasn’t depreciated as much as we might have expected,” commented Stavrakeva.