What the heck is a Jackson Hole Summit and why are market players talking about it?! Here are 4 things you need to know about the event!
Who the heck is Jackson Hole?!
It’s not a who, it’s a what. The Jackson Hole Economic Symposium is an annual forum for central bankers, finance ministers, academics, and financial market participants from all around the world. It has been sponsored by the Federal Reserve Bank of Kansas since 1978 and got its name because it has been held in a ski resort in Jackson Hole, Wyoming since 1981.
This year’s symposium is entitled “Designing Resilient Monetary Policy Frameworks for the Future.” The meetings will take place on August 25-27, 2016 though the program won’t be publicized until 6:00 PM on the first day.
Why does this summit get a lot of attention?
Since global monetary policy hotshots around the world will be pooled (pun intended) in meetings, economic and finance heavyweights sometimes end up sharing thoughts and clues that could affect the global market prices.
Back in 2010, Fed Governor Ben Bernanke used the event to hint that the Fed would be launching QE2 (they ended up implementing it in November). Then, in 2012 the ECB’s decision to not attend the event spurred speculation that Draghi and his gang are up to something big (they were).
What happened last year?
Central bank officials decided to keep calm and carry on. Though there were no fireworks that rivaled Ben Bernanke’s QE2 bombshell, we did find out that major central bankers weren’t too worried about low inflation and falling commodity prices. In fact, Fed Vice Chairman Stanley Fischer even pointed out that low global prices shouldn’t keep the Fed from tightening its policies.
What could happen this time?
Based on the theme above, we can assume that participants would talk about the future of monetary policies based on the strengths and weaknesses the major central banks’ existing programs. Heck, ECB Governor Mario Draghi has been talking about central banks “aligning” their monetary policies for months.
Other topics that might come up in the discussions include China’s economic slowdown, falling oil prices and its impact on global inflation, Brexit concerns, and Shinzo Abe’s cameo in the Rio Olympics closing ceremony.
The highlight of the event won’t happen until Friday though, when Janet Yellen is scheduled to deliver her keynote speech. Market players expect the Fed head honcho to take the opportunity to share the Fed’s long-term outlook on the U.S. economy and provide clear hints on when the central bank would raise its interest rates.
See, investors are getting confused with the mixed signals from Fed members. On one hand we have FOMC members like Dudley and Lockhart showing their hawkish feathers and Vice Chairman Fischer saying that the Fed is close to hitting its employment and inflation targets. On the other hand, the latest FOMC meeting minutes suggested that the Fed is still in the wait-and-see camp.
Right now the CME Group’s FedWatch Tool, which tracks the market’s expectations for a Fed rate hike, only shows a 15% probability that Janet Yellen and her gang would hike rates in September versus an 85% probability that the Fed will decide to keep rates steady.
If Yellen hints that September’s meeting is indeed “a live one,” then we might see the dollar rise across the board. But if she keeps her cards close and sticks to reporting economic figures like she did in in the past, then we’ll likely see the dollar lose more pips.
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