What’s the deal with this week’s Jackson Hole Summit and why should forex traders care?
Here are points you need to know if you’re planning on sticking around to trade 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’s been held in a ski resort in Jackson Hole, Wyoming since 1981.
Bet the Kansas Fed dudes were glad they didn’t hold the first summit in Nimrod, Minnesota!
This year’s symposium is entitled “Challenges for Monetary Policy” and participants are expected to discuss “differences in economic conditions” that have led to “a range of challenges for policymakers.”
The meetings will take place on August 22 – 24 though the meatier parts of the summit will come from speeches scheduled throughout the weekend.
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 global market volatility and prices.
Back in 2010, for example, 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?
Around this time last year, the Fed was in the process of “normalizing” its monetary policies after a long period of being “accommodative.” Back then, traders were expecting the Fed to raise its rates in September AND in December.
However, Fed Chairman Jerome Powell used his first ever Jackson Hole speech to share that (emphasis mine):
“…we have seen no clear sign of an (inflation) acceleration above 2% and there does not seem to be an elevated risk of overheating.”
He also added that “gradually raising rates” is the way to go when navigating the risks of overheating and premature tightening.
Powell’s more gradual (and therefore dovish) approach to raising rates added pressure on the dollar that was already on an intraweek downtrend thanks to trade war-related concerns.
What are market players expecting this time?
Mid-cycle adjustment or nah?
The most anticipated event is Jerome Powell’s scheduled speech on August 23, where he’s expected to shed light on the “mid-cycle adjustment” (read: 25-basis point rate cut) that the Fed did in late July.
Some believe that Powell will use his speech to clarify whether “mid-cycle adjustment” meant “one and done” or if it’s a longer-term process that involves more interest rate cuts.
Remember that the Fed only penciled in ONE 2019 rate cut back in June. Problem is, a lot of market players are pricing in at least one more, while some think there might be a third before the year ends.
Word around is that Powell will likely commit to another rate cut this year but hold off from hinting at a third one. After all, opening the door to a 50-basis point rate cut when major data points aren’t showing red flags could cause undue panic in the markets. Talking about plans beyond the next rate cut would also box the Fed in and risk limiting its options in its next decisions.
Other central bank “challenges”
Don’t forget that Powell won’t be the only central banker and economic big boss in the Summit!
The Federal Reserve Bank of Kansas won’t be publishing its full agenda until August 22, but you already know that you should pay attention to monetary and fiscal head honchos for clues on how worried they are about the recent economic “challenges” and look for hints on how they plan to cope with them.
Look out for comments about the U.S.-China trade tensions, global demand slowdown, Brexit, or even the latest craziness in global bond markets.
Not planning on trading the event at all? That’s fine, you can always sit in the sidelines and just use the weekend’s headlines to form trade biases for next week!