What to ex­pect from the Fed's Jack­son Hole meet­ing

The Pak Banker - - OPINION - Mo­hamed A. El-Erian

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.

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