The Jackson Hole Symposium is an annual event for central bankers and finance heads from around the world. Many major policy decisions were informally announced here, making it one of the most important events to look forward to. Here’s a brief lowdown on the history of the Jackson Hole Symposium, few of the important monetary policy decisions that followed post-Jackson Hole and what to expect from Yellen’s speech this Friday.
Lack of any major market moving events over the past few days has seen most of the financial media focus on this Friday’s Jackson Hole symposium. The kind of attention this year’s Jackson Hole event has gotten could probably be similar to that of a BLS’s NFP report or even one of the larger Fed meetings we saw over the past months.
So what’s the entire buzz about Jackson Hole and how does it matter for traders? More importantly, should you as a trader pay attention to what happens this Friday?
What is the Jackson Hole Symposium?
Image via Latham Jenkins
According to Wikipedia, Jackson Hole, based in Wyoming is a valley and going by the pictures; it looks like a very nice and pleasant place to be. For more about Jackson Hole, this Wikipedia entry should suffice to get a basic idea of the place. But that’s not the point!
Since 1978, the Fed’s Kansas City branch has been sponsoring an annual symposium on important economic issues facing the US and the world economies. The event is held at the Jackson Hole Lodge and is an ‘invite only event.’ Participants to this symposium include prominent leaders spanning across various branches of government, academia, central banks and financial market participants.
One of the rules during the event and one that makes it quite unique is the relaxed approach to the event. While all of the proceedings are on the record, meal time conversations are off the record, which is partly one of the reasons that the symposium has gained more than its fair share of attention from the trading/investor community and perhaps a bit of mystery as well.
Although it is held in the US, the symposium has a largely global flair to it. Members convene to discuss economic issues, present research papers, debate and what not. What has now come to be known as the Jackson Hole Symposium is formally called “The Federal Reserve Bank of Kansas City’s Jackson Hole Economic Policy Symposium.” Quite a mouthful!
For those interested in learning more, this 81 page PDF from the Kansas City Fed provides an in-depth look into the history of the symposium and how it has evolved over the years. If you have the time, it is well worth reading. The topic for this year’s symposium is called “Designing Resilient Monetary Policy Frameworks for the Future.”
Why is Jackson Hole Symposium important?
Over the past decade or so, this annual event has garnered more than the usual attention. This is largely because of what has happened in the past. Some of the biggest monetary policies were initially unveiled at the Jackson Hole Symposium, although not formally announced. Some of the biggest moments from Jackson Hole in the past include:
In 2005, Raghuram Rajan, the then professor at the University of Chicago (and former governor of the Reserve Bank of India) warned about the risks that the financial system had absorbed along the years. Three years later, in 2008, the US subprime mortgage crisis erupted into a full-scale global financial crisis.
Ben Bernanke, the former Federal Reserve president who oversaw the monetary policies during the height of the 2008 financial crisis. In August 2012 Bernanke defended the Fed’s QE policies and more importantly dropped hints of more QE to come. “The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” Bernanke said. Following his comments in August, a month later, the Fed announced QE3 on September 12, 2013.
It was also in 2012 when Columbia University’s Michael Woodford presented a paper where he argued that the Fed’s rigid stance on keeping its main interest rate near zero until a certain time would reflect pessimism about the speed of the economy’s recovery. “A more useful form of forward guidance, I believe, would be one that emphasizes the target criterion that will be used to determine when it is appropriate to raise the federal fund’s rate target above its current level, rather than estimates of the ‘lift-off’ date,” Woodford said.
Interestingly, in December that year, the Fed announced that it would keep rates near zero until unemployment fell to 6.50% and inflation did not climb above 2.50%.
Image via European Central Bank
In 2014, ECB President Mario Draghi dropped hints that the ECBwas moving closer to embarking on its QE path. At the event, Draghi said that the ECB could use “all the available instruments.” His announcement came just two months after the ECB introduced negative deposit rates in the eurozone. The markets took a cue from Draghi and rallied during his speech at the Jackson Hole symposium.
It is no wonder then that this Friday’s speech by Janet Yellen and of course any speeches by other central bankers will be closely watched.
Expectations from Janet Yellen
At this year’s event, the current Fed chair, Janet Yellen will be speaking. Her speech comes at a crucial time when the expectations for a rate hike continue to diverge between the market participants and the Fed members.
Ms. Yellen will, therefore (likely) be using the stage to signal the FOMC’s view on the outlook for growth, employment, and inflation. More importantly, investors will be looking for any hawkish cues from the Fed president ahead of the next FOMC meeting due on September 14.
Narayana Kocherlakota writes a summary on what Yellen’s next message should be, in this article.
Should you be concerned about the Jackson Hole event?
For anyone involved in the financial markets, be it stocks or forex, this Friday’s symposium should not be taken lightly. Although there are a lot of extremes (the event could be a damp squib for all we know), the event’s proceedings could at best highlight the future course of monetary policy. This is essentially important as it comes at a time when central bank bond purchases have been sending yields lower across the globe while the markets remain of the view that the central banks are reaching the limits of their monetary policies. And economic growth remains stagnant at best.
For traders who want to keep an eye out on the proceedings from the Jackson Hole symposium this year, the Kansas City Fed will be updating their website with more information.
You can also follow the #JacksonHole on Twitter.
