What to expect from the Fed's Jackson Hole meeting
The annual Economic Policy Symposium in Jackson Hole, Wyoming, which brings together academic experts, financial market participants and many of the world's central bankers, begins Aug. 27. The timing couldn't be better -- on paper, at least. Although the official focus this year will be "Inflation Dynamics and Monetary Policy," the event organized by the Federal Reserve Bank of Kansas City also should be an opportunity to discuss the challenges facing the global economy, including the slowdown in the emerging world and the threat it presents to social well-being and financial stability.
Yet what is desirable is not always feasible. In past years, U.S. officials in particular have varied in their approach to Jackson Hole. This year, they are most likely to play down any discussion of immediate policy issues, particularly given the genuine questions about whether central banks have exhausted their available policy responses. For a long time, Jackson Hole was reserved for academic-type deliberations that tended to precede the formulation and announcement of policy initiatives. But, in a shift that market participants applauded, Fed Chairman Alan Greenspan and, more pronouncedly, his successor Ben Bernanke, used the forum to set out potential policy pivots.
For example, the Fed used the August 2010 meeting to signal a second round of quantitative easing in which large-scale asset purchases were intended to meet macroeconomic objectives, rather than being used as a tool to normalize disrupted financial market conditions (as was the case under the first round). With that, market participants came to expect major policy signals at Jackson Hole, and some will be pressing hard for insights at this year's gathering.
After a week of turmoil characterized by outsized moves in financial asset prices and spiking volatility, there is an enormous appetite to hear policy makers' views of the two huge concerns that have shaken market confidence: Spreading evidence of a slowdown in global growth led by increasingly generalized weakness in the emerging world (with a particular emphasis on China); and concerns that central banks no longer have sufficient policy ammunition to continue their policy of repressing market volatility, boosting asset prices and inserting a buffer between prices and the more sluggish economic fundamentals. These issues -- as much as the formal agenda -- will be at the forefront of the preoccupations of those attending Jackson Hole. But such concerns are likely to attract less attention than they deserve, as well as fewer insightful public comments from important policy makers.