Jackson Hole’s Greatest Hits Keep Focus on Fed’s Annual Retreat
In his first three years atop the Federal Reserve, Chair Jerome Powell has followed in the path of his predecessors and used the central bank’s annual Jackson Hole symposium to make major pronouncements on monetary policy and the economy.
In 2018, he questioned the usefulness of such economic concepts as the natural rate of unemployment. In 2019, he foreshadowed a cut in interest rates. And in 2020, he rolled out a radical re-jigging of the Fed’s monetary policy framework, at a conference held virtually because of Covid-19.
So it’s no wonder that global investors are once again obsessing over what Powell will say when he speaks to the Federal Reserve Bank of Kansas City’s symposium Friday at 10 a.m. New York time.
Their focus: Any remarks he might make on the future of the Fed’s $120-billion-per-month bond purchase program. At their July 27-28 meeting, most policy makers judged that it probably would be appropriate to begin paring those purchases this year, according to the minutes of the gathering.
The conference is again being held virtually, rather than at the Jackson Hole resort nestled at the foot of the magnificent Teton mountain range in Wyoming. But unlike last year, the proceedings will only be viewable by participants -- except for Powell’s speech, which will be live-streamed by the Kansas City Fed.
Here are some highlights from recent gatherings of the central bank clan in Wyoming:
After years in which the Fed fell short of hitting its 2% inflation goal, Powell unveiled a new operating strategy for monetary policy called flexible average inflation targeting. Rather than trying to hold inflation at its target, the Fed is now seeking to lift it above that objective for a while to make up for past misses on the downside. In his speech to the conference, Powell called the Fed’s new approach “a robust updating of our monetary policy framework.”
Setting the stage for an interest rate cut, Powell warned of “significant risks” to the economic outlook and singled out uncertainty over trade policy as a factor holding back global growth. Though he didn’t mention Donald Trump by name, that didn’t stop the then president from immediately attacking him on Twitter for keeping rates too high, including going so far as to ask whether Powell was a bigger enemy than Chinese President Xi Jinping.
European Central Bank President Mario Draghi laid the groundwork for quantitative easing in his address, warning that inflation expectations had deteriorated and assuring his audience the ECB “will use all the available instruments needed to ensure price stability.” The ECB launched QE the following year.
Fed Chairman Ben Bernanke signaled a third round of quantitative easing was on the table in his speech at Jackson Hole at which he defended the effectiveness of the Fed’s controversial bond purchases. Calling the costs of unconventional polices “manageable,” he said officials should not rule out their future use. The Fed initiated QE3 the next month.
As the financial crisis raged, Bernanke frequently left the formal conference proceedings to discuss market developments with key lieutenants, including Fed Vice Chairman Donald Kohn and New York Fed President and later Treasury Secretary Timothy Geithner. “We tried to remain inconspicuous by leaving the conference at different times,” Bernanke recalled in his 2015 memoir of the period.
In his opening speech, Bernanke put an interest rate cut squarely on the table by recounting the toll that the slumping house market had taken on the economy and by stressing the importance of “well-functioning financial markets.” The central bank slashed rates by a half percentage point the following month, the first in a series that eventually lowered the Fed’s target to near zero.
In a symposium mainly given over to extolling the record of departing Chairman Alan Greenspan, University of Chicago economist Raghuram Rajan warned about excessive risk-taking by asset managers seeking to boost their compensation. Former Treasury Secretary Lawrence Summers sharply criticized Rajan’s paper for its “slightly Luddite premise.” But Rajan, who went on to become governor of India’s central bank, proved to be prescient as financial markets were engulfed by turmoil a few years later.
Then-Princeton University professor Bernanke and Mark Gertler of New York University made the case for the Fed pursuing a strategy of “flexible inflation targeting,” arguing that such an approach could achieve both macroeconomic and financial stability. The Fed did adopt a 2% inflation target in 2012, after Bernanke became chairman.
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