The Jackson Hole Federal Reserve Economic Symposium, held last weekend in Wyoming, is the only time of year when U.S. Central Bankers get to loosen their ties, breathe a little fresh air and wax philosophically about monetary policy. But let’s not get too excited—it’s no Burning Man!
We care about Jackson Hole as we hunt for short-term clues as to the speed of rate hikes and the destination for fed funds rate over the next few years. We all wonder if the Fed will pause raising rates for emerging market mayhem, if higher inflation or lower unemployment will push higher the fed funds target rate, or whether the committee is more likely to just gradually, modestly and carefully raise rates and shrink its balance sheet as the economy continues to improve?
Jay Powell, chair of the committee, clearly indicated there is no clarity. The world is uncertain, and the Fed’s crystal ball remains cloudy as it constantly tries to navigate between “moving too fast and needlessly shortening the expansion, versus moving too slowly and risking a destabilizing overheating.” Mr. Powell reiterated the Fed’s talking points, that “if the strong growth in income and jobs continues, further gradual increases in the target range for the fed funds rate will likely be appropriate.” Though he was quick to note that this is the consensus view, there are differing opinions on the committee. The markets interpreted his comments as mildly dovish, and stocks rose as the dollar fell.
Despite the good short-term news, Mr. Powell also commented on a number of longer-term structural challenges facing the U.S. economy that generally can’t be fixed by raising or lowering the fed funds rate. Real wages (particularly for medium- and low-income workers) have grown quite slowly in recent decades, economic mobility in the United States has declined and is now lower than in most other advanced economies, the U.S. federal budget deficit is unsustainable and there is continuing low productivity. More interesting side bar conversations included challenges to the economy stemming from monopoly power and corporate consolidation, the potential for technology to reshape how retailers set prices and the trade-offs between stability and competition in the banking sector. We shall see if these trial balloons get any traction!
Ultimately, it was no Burning Man in Jackson Hole, with no disruptive technologies announced or new visions for the future proposed. But when it comes to central banking, maybe cautious, conservative and calm is the best course.
Enjoy the last days of your summer.
Sources: The Federal Reserve, the Wall Street Journal, Bloomberg, the Financial Times