What happens in Jackson Hole does not stay in Jackson Hole

New York
CNN
—

People visit Jackson Hole, Wyoming most of the year to ski, fish, or simply enjoy the area’s vast natural beauty. But for three days in late August, the valley near Grand Teton National Park turns into Woodstock for economists.

There, leading economists from around the world meet and mingle with reporters and investors hungry for clues about their economic forecasts. But instead of the Grateful Dead, the headliner of the Aug. 24-26 festival is Federal Reserve Chairman Jerome Powell (who admits he’s dead).

Powell took the stage at the 46th Festival hosted by the Federal Reserve Bank of Kansas City, officially known as the Jackson Hole Economic Symposium on Friday morning.

Inflation has slowed significantly since the Jackson Hole conference last year, along with glimmers of a slowing labor market. But this is not confirmed How long will that last without further rate hikes. It is possible that the Fed’s actions thus far may not be sufficient to keep inflation sluggish.

On the other hand, because there are gaps between when the Fed moves in and when its actions are felt throughout the economy, there is a risk that the Fed will end up inflicting more pain than is needed to bring inflation to the bank’s target of 2 % If so. Raises interest rates too high.

during the most recent At their July meeting, Fed officials said again that they felt the risks of not raising interest rates high enough to combat inflation outweighed the risks of accidentally raising rates. Hence, they chose to raise the interest rate by a quarter of a percentage point. The increase came after central bankers voted to keep interest rates steady in June, the first pause since they began raising interest rates in the spring of 2022.

Traders are convinced that the Fed will pause again at its meeting next month, according to CME FedWatch tool. But there is much less consensus on the Fed’s post-September plan.

Michael Cahill, vice president of foreign exchange research at Goldman Sachs, said that if history is any indication, Powell’s speech could lead to significant policy changes.

Last year’s Jackson Hole conference was notable not only because it was the first time in two years that economists had met in person. Powell used his keynote speech to warn that Fed officials will not apologize in their fight against inflation, even if it means inflicting “pain” on households and businesses. This was followed by three-quarters of a percentage point rate hike at subsequent Fed meetings after Jackson Hole – and the central bank has continued to raise rates, albeit at a much slower pace, since then.

In recent history, there have been several other noteworthy speeches delivered from the Jackson Hole Conference.

For example, in 2010 Ben Bernanke, then chairman of the Federal Reserve, used his time there to lay out “policy options for further easing”, as Cahill said. “This was widely seen as a signal of further quantitative easing,” he added. Quantitative easing, or quantitative easing, is when the Federal Reserve buys bonds in an effort to lower interest rates to stimulate the economy.

Months after Bernanke’s Jackson Hole speech, he unveiled an entirely new phase of bond-buying in what is now known as the second round of quantitative easing. Then, in his 2012 Jackson Hole speech, Bernanke said the sluggish labor market was a “grave concern.” He also said that the second round of quantitative easing from the Fed showed positive net benefits. Shortly thereafter, the Fed launched the third round of quantitative easing.

In 2016, then-Federal Reserve Chair Janet Yellen, now Treasury Secretary, used her Jackson Hole speech to prepare markets for further rate hikes, saying she believed “the case for a higher federal funds rate has strengthened in recent months.” Then, starting with From December of 2016, the Fed raised interest rates roughly every three meetings through 2018.

Like the lineup of music festivals, Jackson Hole contains other headlining and smaller-stage events.

In fact, it’s not always the Fed spokesmen who are most in the spotlight, Cahill told CNN.

Bernanke’s speech wasn’t the only headline-grabbing speech at Jackson Hole in 2012. Michael Woodford, an economics professor at Columbia University, delivered remarks criticizing the Fed’s reluctance to commit explicitly to keeping interest rates low to help the economy grow. His words and The research results he presented did not go unnoticed by the Fed.

The policy statement issued in December 2012 after the meeting said that Fed officials expected that “this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate is above 6.5%.”

“This shift was made with the goal of helping the public better understand the Fed’s decision-making process in response to changes in economic conditions,” New York Fed President John Williams said in a 2013 statement. Column for VoxEU. At the time of publication, Williams was President of the Federal Reserve Bank of San Francisco.

Central bankers from outside the United States also used their time on the Jackson Hole stage to signal policy changes.

Former ECB President Mario Draghi highlighted in his 2014 remarks at Jackson Hole that the levels of inflation the markets were pricing in were too low. Cahill said those comments were widely seen as a stepping stone to further quantitative easing even after the European Central Bank cut interest rates into negative territory.

Columnist for the Financial Times He went so far as to say that Draghi “definitely stole the spotlight this year [at Jackson Hole]”.

No matter what comes out of the conference this year, it is clear that what happens in Jackson Hole does not stay in Jackson Hole.

This story was updated from its original version on Friday at 8 a.m. ET