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Quick Q&A, what is the Jackson Hole Economic Symposium?

Host: Federal Reserve Bank of Kansas City

Location: Jackson Hole, Wyoming

Participants: Economists, financial market participants, scholars, US government representatives, and news media

Purpose: To discuss long-term policy issues of common concern.

The Jackson Hole Economic Symposium is one of the world's longest-running central bank conferences. It attracts participants from 70 countries who come together to share their diverse views and experiences, making it a truly global event. It is often referred to as the "annual feast" of global central banks.

The proportion of participants at the symposium is as follows:

This year's conference is scheduled to take place from August 24th to 26th, 2023 in the United States. As with every year, the conference will have a specific theme, such as inflation, labor markets, and international trade. For this year's symposium, the theme will be "Structural Shifts in the Global Economy," exploring the changes and trends that are transforming the global economic landscape.

Why should investors pay attention to this conference?

The Jackson Hole Economic Symposium, hosted by the Federal Reserve Bank of Kansas City, is closely related to the Fed's monetary policy which makes it one of the most anticipated conferences for investors besides the eight Federal Open Market Committee (FOMC) meetings held every year. The Fed chairperson often attends and reveals the follow-up attitude of monetary policy at the Jackson Hole Economic Symposium. Therefore, paying attention to some speeches at the conference could be very beneficial for investors.

In past years, the information conveyed from Jackson Hole has had a significant impact on the market, as shown in the following examples:

In 2009, During the global economic crisis, at the Jackson Hole conference, Ben Bernanke, the Chairman of the Fed, along with Masaaki Shirakawa, the Governor of the Bank of Japan, and Jean-Claude Trichet, the President of the European Central Bank, jointly announced that the three major central banks would collaborate to address the global financial crisis. Subsequently, in September, the Fed extended its loose monetary policy plan.

In 2011, Fed Chair Bernanke stated that the US economic recovery was weaker than expected and the unemployment problem was worrying. The Fed should provide monetary policy to stimulate the economy. Later, Bernanke kept his promise. On September 21, 2011, the Fed announced the launch of $400 billion in "Operation Twist."

In 2014, Fed Chair Janet Yellen said that quantitative easing (QE) was expected to end in October of that year, and if progress in the employment market continued to be better than expected, there would be a possibility of future interest rate hikes. After Yellen's speech, the dollar rose sharply. In October 2014, the Fed officially stopped buying bonds.

Last year's example also underscores the importance of this conference.

During a period of declining inflation in the US, Fed Chair Jerome Powell made a hawkish inflation speech at Jackson Hole - indicating that the Fed will continue to raise interest rates and keep them high until inflation is under control.

This was followed by significant market volatility, with the Dow Jones index falling over 1,000 points and all three major indexes dropping more than 3%.

As a result, the remarks made by the Fed chairperson at the Jackson Hole Economic Symposium are likely to impact short-term market behavior and provide an important indication of future monetary policy.

What can we expect from this year's conference?

We analyzed data from 2015 to 2022 on the Fed chairperson's attitude towards monetary policy at Jackson Hole.

Note: Fed watchers like to characterize members of the Federal Open Market Committee (FOMC) as either “hawks” or “doves.” Hawks are viewed as favoring tighter monetary policy with an emphasis on controlling inflation. In contrast, doves are viewed as favoring easier monetary policy with an emphasis on maintaining maximum employment.

Fed Chair Jerome Powell mostly took a "dovish" stance at past conferences, but last year was an exception. How the Fed will communicate its message at the conference this year remains to be seen, and we can look for clues from recent news and statements from Powell.

After the July FOMC meeting, Fed Chair Jerome Powell stated in the press conference that "it will take a long time to bring inflation down to 2%". According to Bloomberg, this suggests that interest rate hikes may continue, making the employment report and consumer price report before the next FOMC meeting particularly important.

As expected, the minutes released on August 16th showed concerns from Fed officials about the pace of inflation. They also indicated that "further interest rate hikes may be needed unless conditions change."

Inflation, as measured by the Fed's preferred indicator, the Personal Consumption Expenditures (PCE) price index, has decreased from its peak of 7.0% in June 2022 to 3.0% in June 2023. Even when taking into account the core PCE index, which excludes food and energy prices, inflation has dropped from 5.4% to 4.1%. Despite these declines, Bloomberg analysts predict that inflation still has a long way to go before reaching the Fed's target of 2%. As a result, the Fed has yet to achieve its dual-mandate goals, and the labor market may still be too hot, hindering continued reduction of inflation to 2%.

Additionally, Bloomberg analysts note that Fed Chair Jerome Powell consistently emphasizes that the endpoint for inflation is strictly 2% and that he and his FOMC colleagues will not accept anything more than that level.

In light of this information, it may not be reasonable to expect strong dovish signals from the upcoming Jackson Hole Economic Symposium. It is important to exercise caution and take sensible measures to manage your investments given the potential risks ahead.

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