Jackson Hole symposium: All eyes on Fed chair Powell
After an extremely busy few months, the world’s central bankers may have fancied a relaxing trip to the Teton mountain range in the US state of Wyoming.
Yet it’s not to be. The coronavirus pandemic has forced this year’s Jackson Hole economic policy symposium to be held online on 27 and 28 August.
Since 1982, monetary policymakers from around the globe have convened at the ski resort to mull over the latest challenges and trends faced by central banks.
However, not since the financial crisis will a meeting have had such an overriding focus. Coronavirus, the damage it has wrought on economies and how central banks can help will dominate the discussion.
Philip Shaw of Investec said participants are likely to “step back” and consider “the longer-term consequences of the pandemic”.
“As such investors would be wise to keep their ears to the ground for implications, such as for long term interest rates,” he said.
The star of the symposium will be US Federal Reserve chair Jay Powell, who has pumped trillions of dollars into the US economy during the coronavirus pandemic. He is due to speak on Thursday 27 August at around 2pm UK time.
A gloomy pronouncement from the Federal Reserve appears to be one of the few things that can dent the ongoing rally in global stocks.
The release of the downbeat minutes from the Fed’s latest meeting caused a sharp sell-off last week. After that, however, stocks resumed their upward path and the S&P 500 hit a new all-time high.
So investors will watch Powell nervously through their computer screens – the symposium will be livestreamed – for any updates on the US economy’s recovery.
Fed’s policy review
But Powell’s speech will be of particular interest to professional investors, because he is likely to discuss the Fed’s long-running policy review, which is due to end next month.
The Fed announced a review of its strategy, tools and communication back in November 2018. Since then, several Fed officials have signalled a willingness to let inflation rise above the two per cent target.
Paul Ashworth, chief North American economist at Capital Economics, said the Fed is likely to “explicitly allow for an overshoot of the inflation target to compensate for the undershoot over the past decade”.
The change would be a big deal for markets, where inflation and inflation expectations are of central importance. It could also give the Fed room to inject more stimulus into the Covid-hit economy.
However, Powell is unlikely to release all the findings and decisions of the policy review. They are likely to come at the next Fed meeting in September or after.
Bank of England and ECB to feature
Bank of England governor Andrew Bailey will speak the day after Powell. He will be closely watched by FTSE 100 and sterling investors.
Bailey has had a baptism of fire, to put it mildly. He took the Bank’s helm from Mark Carney in March as markets were crashing.
Since then, the BoE has slashed interest rates to record lows. And it has pumped hundreds of billions into the bond markets to try to stimulate lending.
Earlier this month he said negative interest rates had been added to the BoE’s “toolkit” for the first time. Although he said he does not “have a plan to use them”.
Investors will look out for more details on negative interest rates, which could radically alter finance in the UK. Markets continue to think they could well become a reality by the end of this year.
European Central Bank (ECB) chief economist Philip Lane is also due to speak at the symposium. His speech will be parsed for any updates on the Eurozone economy.
Investors think both the ECB and BoE are likely to beef up their bond-buying before the end of the year.
Both central banks have been aided by massive fiscal stimulus, however. That cannot be said of the US, where Republicans and Democrats remain at loggerheads over the next round of stimulus.
Analysts expect central bankers – especially American ones – to use their virtual platforms to encourage governments to keep spending.