Source: MarketWatch

Yellen at Jackson Hole: What to Expect

August 20th, 2016 by

Federal Reserve Chair Janet Yellen will be speaking at the annual Economic Policy Symposium hosted by the Kansas City Federal Reserve in Jackson Hole, Wyoming next Friday.

Source: MarketWatch

Source: MarketWatch

This event, which was introduced in 1978 (and moved to Jackson Hole permanently in 1982), is an annual opportunity for the members of the Federal Reserve Open Market Committee (FOMC) to grab some media attention during the summer news cycle. Undoubtedly, Yellen’s word will be parsed and pored over between Friday and the FOMC’s next meeting in September.

Jackson Hole Tradition

At Jackson Hole, an array of policy wonks, central bank officials, and academic economists from around the world come together in order to hold open discussions about the biggest trends in monetary policy. Attendance is exclusive, both for the participants and the media covering the event. Because of the restricted media access, the markets often await eagerly for the full transcripts of the summit to trickle out over the following days and weeks.

The event is held at the National Park Service’s Jackson Lake Lodge facility. The Kansas City Fed releases a short publication detailing the 40-year history event at the end of the month, making Jackson Hole one of the longest-standing central bank conferences in the country—especially one with an international focus.

What to Expect

The Three Stooges

The Three Stooges

As they are increasingly inclined to do, the FOMC members have been talking up different policy strategies for the Fed. This invariably has an impact on markets and investor expectations. For instance, San Francisco Fed President John Williams has played the hawk lately, making comments about the appropriateness of hiking interest rates soon. Apparently, several voting members of the FOMC dissented on the board’s decision to leave the federal funds rate unchanged last month, as revealed by the July meeting minutes. Williams isn’t a voting member of the committee in 2016, but remains an influential policymaker.

However, this hawkish talk is probably calculated rhetoric. The Fed probably has no plans to raise rates before December, but it must keep the markets on their toes. Keep in mind, the Fed has never raised interest rates within two months of the presidential election going back more than 25 years. The tweet below highlights this trend, which no doubt is a way of avoiding the appearance of being biased to one political party or the other.

This brings up an interesting point: Although Fed governors are tasked with be independent arbiters of monetary policy, it’s worth considering that the chairperson—currently Yellen—is appointed by the president, perhaps belying certain politically motivated loyalties.

Another key consideration that will likely be discussed at Jackson Hole is whether or not the Fed can find the “Goldilocks medium” between hiking too soon or waiting too long. The central bank is currently caught in the middle of overshooting on inflation by maintaining ultra-low rates, or causing a market disruption by raising them prematurely.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.