A peak inside the Jackson Hole

Via Goldman:

The key development in Federal Reserve communication last week was a wide-ranging interview with FRBNY President Dudley. Two quotes in particular stood out to us. First, Dudley suggested that so far he has not changed his “dot”; if things go as planned then he “would be in favor of doing another rate hike this year.” Dudley put the onus for that to happen squarely on inflation by saying “the next 4 to 6 months I think are going to be important” to see if the Fed is right that recent weakness is transitory or “there’s something more fundamental going on.”

This is the third year in a row that Dudley has given a substantive mid-August update, and it has generally been a good policy bellwether. His remarks this week were close to the thinking of our US Economics Team and we have left our subjective odds for another rate hike this year unchanged at 55%.

The accounts of the July ECB meeting generated some buzz in FX markets when they revealed that “concerns were expressed about the risk of the exchange rate overshooting in the future.” Whenever interpreting unattributed meeting minutes, we think it is important to keep it in context. In this case, President Draghi was asked directly about the exchange rate in the post-meeting press conference and only said that it has received “some attention” and there have been “various exchanges of views.”

In our view, the more concrete message from the minutes was that “The Governing Council would, in the autumn, consider the future course of its monetary policy and, in particular, its strategy for asset purchases beyond the currently communicated horizon.” This is in line with our economists’ longstanding view and our discussion last month that Draghi would be unlikely to use his Jackson Hole speech to give a new policy direction. This was further reinforced by a Reuters article this week, citing unnamed ECB sources, although there are still some expectations for a more substantial policy update.

This week brings the annual “Kansas City Fed’s Jackson Hole Economic Policy Symposium.” In this edition of the Chatterbox, we provide some of the logistical details of the conference.

Starting with the basics, the conference runs from the night of Thursday, August 24 through Saturday afternoon. Each year, the conference centers around one broad theme (this year it is “Fostering a Dynamic Global Economy”) and all of the presentations should be a mix of current policy discussions and the conference theme.

The full program will be released here on Thursday night at 8pm NY time. In addition to timing, this schedule will include speaker names and the title of papers they will be discussing (if applicable). It is probably worth mentioning that because the conference is in Wyoming, all times are listed in Mountain Time. That is two hours behind the US East Coast and seven hours behind London.

None of the conference is broadcast. For all of the published speeches and papers, text will be released at the scheduled time for the panel or speech and there is no televised Q+A. However, there are usually a series of sideline TV interviews across major business networks. These are conducted throughout the day with a number of Federal Reserve officials (usually around five), international central bankers and academics. Because the speeches often have more of an academic slant, these interviews can often be the most relevant short-term news events of the day. The last couple years, Vice Chair Fischer has done an interview on CNBC during the first coffee break around 11:30 NY time.

The main events start Friday morning at 10am with the keynote speech, which we now know will be delivered by Fed Chair Yellen. So far, the Fed has only said that her speech will be on the subject of “Financial Stability.” It is obviously hard to forecast a freeform speech, so we will just make a few logistical points.

First, since it is the keynote speech for the conference, the content of the speech should be closely tied to the conference theme of Fostering a Dynamic Global Economy.

Second, the subject of the speech alone is not a sufficient indicator for whether or not she will comment on current policy. Last year, the subject of Yellen’s speech was listed as “The Federal Reserve’s Monetary Policy Toolkit” but she decided to include an opening section on the “Current Economic Situation and Outlook” that could just as well have been omitted.

Third, keep in mind that this is an academic setting above all else. Although Yellen certainly knows the weight that her words carry, the Jackson Hole keynote tends to be 10-15 pages long and can include multiple pages of academic references and footnotes; this is not the kind of thing that is easily distilled into a few news headlines. Last year’s speech, with its explicit section on current policy, was probably an exception to that rule.

The keynote speech is just one aspect – albeit an important one – of a busy conference So far, we also know that ECB President Draghi will deliver the luncheon address on Friday at 3pm NY time. The text of his speech should be released at that time. While this could certainly change, the rest of the speaking slots on Friday are usually reserved for academics. In past years, there has also been a closing panel on Saturday around 12:25 NY time that features speeches from two or three G10 central bankers and one from EM.

On the other end of the spectrum, the academic papers (and the topic of the conference itself) could potentially have the longest-lasting impact on the policy discussion. However, these will also be the hardest to immediately interpret. As with the speeches, the text of the academic papers will not be released until the time of the relevant panel. The title and author names will be on the program released on Thursday night.

Comments

  1. tl’dr…

    (1) Debt ceiling increase no worries, and we can expect Trump to stay in place.
    (2) Immigration reforms mean that wage inflation is starting to hit the labor market, but when will it show up in the numbers, so the fed can go back to pretending they are evidence based. This is when they declare victory, and Yellen goes out on a high. Which should also mean Cohn is in for sure with Bannon’s departure.
    (3) Communication policy current cover asset purchases until when, does anyone know? Can assuming tapering and normalization rhetoric goes up about then.