It's that time of year again - here's your Jackson Hole Primer

Image: Tom Fisk

Jackson Hole starts this week, but so what?

Yeeha - it’s on again. It’s the annual Woodstock for bankers where the Federal Reserve Bank of Kansa City welcomes a squadron of the world’s most senior central bankers, economists and thought leaders to prognosticate on economics in the cool shadows of the impressive Grand Tetons, pictured above.

It’s referred to simply as ‘Jackson Hole’, short for the Jackson Hole Economic Symposium.

This year’s topic is: “Structural Shifts in the Global Economy”.

The agenda is not normally sent out until the first day, but there’s little doubt that there will be a lot of folks wanting Fed Chair Powell to come out and define in detail when, if and how he might slow the pace of tightening, or indeed, change it.

But seriously, that isn’t going to happen.

Typically, the Fed Chair makes some opening remarks on the first day and that’s followed by a couple of days of paper presentations and (mostly) interesting panel discussions.

The more informative part of Jackson Hole is what happens between the formal proceedings and during the outdoor breakout press interviews. These are unscripted.

And we know from past press conferences that unscripted responses to the press is not Chair Powell’s strong suit.

So, it’s probably going to be during those informal interludes that investors will be hunting for a clue to judge the size of September’s rate hike as well as Powell’s forward trajectory for monetary intervention.

While we can remain hopeful for some theatre, here’s a refresher on where things are at so you can tell whether what falls out of the Fed’s saddle bag is something, or nothing.

The economic backdrop to this year’s symposium

Key metrics:

  • Inflation is still above the Fed’s 2% target range.

  • As we are coming to the end of the rate cycle, the Fed has slowed the pace of tightening.

  • The FFR currently sits at 5.25% to 5.5% and the market feels there’s at least another rate rise to come. Some feel there’s more to come and the last dot plot produced by the Fed indicated that some of the Fed Governors felt that getting up around 6% might be needed.

  • With CPI only down a little, PPI still strong and unemployment still at historic lows, the Fed will keep going because there’s a risk inflation will come back if it stops too soon.

  • The Fed balance sheet sits at $8.145 trillion, down from its $8.9 trillion peak.

  • QT (quantitative tightening) is still on auto pilot.

Since last year’s Jackson Hole, Powell has succeeded in wiping $700 trillion off the balance sheet and increasing the federal funds rate by 550 basis points.

Not bad going.

The big question

For me, the big question is whether the Fed will calibrate monetary policy to achieve a soft landing (delaying the much-hyped Fed pivot) or whether it wants to ‘break’ something and cut rates so that Treasury can once again afford to finance its past, present and future deficits at more affordable coupon rates.

There is no way that question will be answered at Jackson Hole, but we might see a few ‘unscripted’ slip ups/clues as to the level of Chair Powell’s hawkishness over the course of the week.

Saddle up!

Mike

Image: Conny Querales

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