Jackson Hole’d – A New Monetary Order Looms

Via ConvergEx's Nicholas Colas,

Just what goes on at the annual Kansas City Fed economic symposium in Jackson Hole?  The short answer is “Generally, not much”. 


Will this year’s confab be any different, with Chair Yellen slated to speak on Friday?  Fed Funds Futures markets don’t think so, with just an 18% chance of a rate hike at the September FOMC meeting and coin-toss odds of a bump in December.


The title of this year’s Jackson Hole proceedings is, however, telling: “Designing Resilient Monetary Policy Frameworks for the Future”.  Merriam-Webster defines “Resilient” as: 1) able to become strong, healthy, or successful again after something bad happens 2) able to return to an original shape after being pulled, stretched, pressed, bent, etc.  So what does the Fed have in mind when it considers the need for future resilience?  Perhaps this year’s Jackson Hole conference (or its title, anyway) will offer more clues to future policy than just Chair Yellen’s talk.

While the Kansas City Fed’s annual conference in Jackson Hole is safe for this year, come 2017 they are going to have some competition for hotel rooms and other local resources; there is a full eclipse of the Sun scheduled on August 21st.  Local papers report that civic leaders are already working through plans for an additional 40,000 visitors/day to Jackson for the entire week around the “The Great American Eclipse”, the moniker the event now carries.  Here is a quick article from a local newspaper, highlighting the one (quite unexpected) “facility” that locals are most anxious to reserve: http://www.jhnewsandguide.com/news/town_county/solar-eclipse-will-bring-more-than-just-darkness/article_f227e356-030b-5b68-a71a-b363564dc8ce.html

The Kansas City Fed has been holding its annual symposium since 1978, but only moved the show to Jackson Hole in 1982 in conjunction with a change in focus.  Prior to then the central topic was agriculture, a natural focus for the 10th district.  The leadoff talk at the first KC Fed conference was “World Trade and the Small Farmer: Can They Co-Exist?”  Anxious to draw avid fisherman and Fed Chair Paul Volcker to the meeting, they changed the location to Wyoming and the content to general macroeconomics.  The first speech at the new venue in 1982: “Issues in the Coordination of Monetary and Fiscal Policies”.  (A title that we may never see again, if current trends continue.)

As for this year’s event, the spotlight is on Chair Yellen’s talk on Friday.  But what else is going on?  Here’s a quick summary of the event as a whole and a bit more history:

The conference is held at the Jackson Lake Lodge, which is owned by the National Park Service but operated by a private company. If you want to check out the rooms and amenities, click here: https://www.nationalparkreservations.com/lodge/grandteton-jackson-lake-lodge/?utm_source=msn&utm_medium=cpc&utm_term=jackson%20lake%20lodge&utm_campaign=GrandTeton%20Opt%20New


The KC Fed has a list of all previous symposia, their topics and speakers here: https://www.kansascityfed.org/publications/research/escp/symposiums/escp-archive


There is no agenda yet available on the website for this year’s meeting, but the general cadence of events is easy enough to determine from prior years’ proceedings. Things kick off Thursday evening with a dinner.  Friday morning the group reconvenes at 8am, hears three papers and accompanying panels, then lunch. Afternoon off, then meet up again Saturdaymorning for three more papers and panels and lunch.  That’s about it.

The symposia titles do give a small window into the macroeconomic narratives of the day.

In 1984, “Price Stability and Public Policy”.


In 2001: “Economic Policy for the Information Economy”.


In 2007, “Housing, Housing Finance and Monetary Policy”.


In 2009, “Financial Stability and Macroeconomic Policy”.


And if you’re now thinking the unkind notion that the Fed can be behind the curve, consider that (at least) in 1998, they were forward thinking enough to title the conference “Income Inequality Issues and Policy Options”.

In the narrowest sense – the one that markets care most about, anyway – this year’s Jackson Hole conference is about one thing: what will Chair Yellen say about interest rates?  Capital markets prices tell us to expect very little new information.  Fed Funds Futures have been discounting a low likelihood of a rate increase at the September FOMC meeting (18% currently) and essentially a coin flip at the December meeting.  Those odds haven’t changed much in weeks…


Yet the title of this year’s Jackson Hole meeting – “Designing Resilient Monetary Policy Frameworks for the Future” – is a telling one.  It is actually a call to a specific goal, rather than the generic “Inflation Dynamics and Monetary Policy” (2015) or “Re-Evaluating Labor Market Dynamics” (2014) or even the outstandingly bland “The Changing Policy Landscape” (2012).  You get the feeling that the Fed has something on its mind…


And even if it doesn’t, plenty of other senior policy folks seem to be raising their hands.  Former Chair Ben Bernanke recently penned another one of his blog entries, called “The Fed’s shifting perspective on the economy and its implications for policy”.  His summary:

“It has not been lost on Fed policymakers that the world looks significantly different in some ways than they thought just a few years ago, and that the degree of uncertainty about how the economy and policy will evolve may now be unusually high.”

Translation: Fed projections have been wrong, and the central bank doesn’t know how to make them any better in the future. Bernanke’s takeaway advice to investors: there is “Less benefit in parsing statements and speeches and more from paying close attention to the incoming data.”  No one knows nothing…  Full text here: https://www.brookings.edu/blog/ben-bernanke/2016/08/08/the-feds-shifting-perspective-on-the-economy-and-its-implications-for-monetary-policy/

Or, as another example, consider the recent paper by Fed staff economist David Reifschneider that asks the question “What if there is a U.S. recession before the Federal Reserve has the chance to raise Fed Funds back to normal?”  This seems a topic that directly addresses the spirit of the Jackson Hole Conference about “Resilient” policy.  Reifschneider’s answer: altering the Fed’s policy of forward guidance and providing quantitative easing/bond buying.  Not exactly comforting, that…


You can read a summary of the paper here: http://www.bloomberg.com/news/articles/2016-08-22/a-new-paper-reveals-the-fed-s-policy-impotence-if-another-recession-hits-soon

And the whole thing here: http://www.federalreserve.gov/econresdata/feds/2016/files/2016068pap.pdf

In the end, the most notable thing about this year’s Jackson Hole conference comes down to that one word in the title: “Resilient”.  The origins of that word are from the Latin: resilire, to “leap back”.  In modern usage, it means to spring back after a difficult time, or in the case of a physical object the ability to recover an original shape after bending, stretching or compression.

What challenges does the Fed see ahead?  Even by former Chair Bernanke’s own thinking, the central bank has little ability to forecast the U.S. economy reliably.  Perhaps “Resilience” is the new “data dependent”… A goal rather than a specific direction.


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