WORLD MONEY
For a few days every August the resort town of Jackson Hole in the Western US state of Wyoming, known for its skiing, mountain trails and fishing spots, turns into the Woodstock, the Mardi Gras, the festival of festivals for the rather dour breed of economists and investors. The A-listers of this world including topnotch academic economists, central bank governors and policy officials gather in Jackson Hole to discuss the most pressing issues in global economics, especially interest rates, inflation and monetary policy.
This year’s meetings at the Jackson Lake Lodge that took place last week were perhaps a little more important than those of other years, particularly for investors who have been fretting over the course of monetary policy going forward. Their curiosity had been kindled after hearing European Central Bank (ECB) President Mario Draghi two months ago at a similar central banking forum in Sintra, Portugal, when he discussed the possibility of ending his central bank’s money printing programme. Investors were hoping that they would get more clarity about the European monetary authority’s plans at Jackson Hole.
Just to put this in context, the ECB currently buys assets worth ^60 billion every month (to infuse liquidity) and has held interest rates at exceptionally low levels (including negative interest rates for some deposits) for a long time. Given Draghi’s intentions — communicated at Sintra and some other forums — to wind down ECB’s asset purchases and hike interest rates, investors have been taking large long positions in the euro and the currency has appreciated by more than 12 per cent in 2017 against the US dollar. Investors hoped that Jackson Hole would confirm whether they had placed the right bets.
Investors were also eager to know more from Janet Yellen, who possibly attended this grand meeting for the last time as the chairperson of the US Federal Reserve. Although the stated topic of Yellen’s speech was “financial stability”, everyone believed that she would devote some time to explain the recent softness in US inflation and the Fed’s stance on its balance sheet tapering. In the past, the former chairman of the US Fed, Ben Bernanke, used this forum to prepare the financial market for big changes. For example, the third round of the Fed’s quantitative easing programme was gently hinted at in this Wyoming resort a few months before the policy was officially launched. Since the Fed has communicated its intention of winding down its six-year-long policy of monetary easing, the markets hoped that Yellen would give more details.
In a sense, both the top draws disappointed. Yellen stuck to the script and focused on regulatory reforms since the 2008 crisis and warned against their removal. Draghi, too, avoided talking about the timeline for paring his balance sheet and other monetary matters and decided to talk about “trade liberalisation” instead, a topic as safe as it can get for a central banker. (His Sintra speech had incidentally rocked the currency markets.)
Policy watchers and investors are known never to give up. Yellen’s critique of the Trump agenda of greater deregulation seems to have been read as a confirmation that she is on her way out. Her successor, likely to a Trump camper, could play a completely different ball game, bringing the rate-hiking cycle to an end to push the dollar down further to help exporters, keep the cost of capital low and incentivise investments.
While Draghi might have chosen not to explicitly talk about monetary policy, the fact that he didn’t express any concern about a strong euro is being seen as a signal that the appreciating euro will not hold the ECB boss from some monetary tightening in the future.
Was this year’s meeting the show to beat all shows? Clearly not. However, for the aficionado, silence carries its own meaning and the stuff that lies between the lines are just as important as the large print. Perhaps Jackson Hole did not disappoint that much after all.