What is the Jackson Hole Symposium and how to trade it?
Why do central bankers meet in Jackson Hole?
The Jackson Hole Economic Symposium, known generally as just ‘Jackson Hole’, is an annual conference of global central bankers. It takes place in Jackson Hole, Wyoming, and is hosted by the Kansas City branch of the Federal Reserve (Fed).
The annual meeting sees officials from the Fed, Bank of England (BoE), European Central Bank (ECB) and others meet to discuss important issues, with around 120 attendees, including members of the media.
Why is it important?
In recent years the conference has seen central bankers make important pronouncements on the global economy and monetary policy. In part the event is so closely-watched since it takes place at an otherwise quiet time of year, in late August, when economic data is relatively sparse and major earnings have been released.
Previous meetings have seen the-then heads of the Fed make important speeches. In 2010 Ben Bernanke laid out options for further policy easing that was viewed as the signal for more quantitative easing. In 2012 he spoke of his ‘grave concern’ for markets, which was followed by a third round of quantitative easing.
Janet Yellen, now US Treasury Secretary, used her 2016 address as Fed chair to prepare the market for more rate hikes, which began in December 2016 and continued until 2018.
What is happening this year?
This year’s topic is ‘Reassessing the Effectiveness and Transmission of Monetary Policy’.
This time around, the conference may see central bankers from the US, UK and the eurozone discuss the outlook for more easing of monetary policy, i.e. cutting interest rates. The Fed used its most recent meeting to keep policy unchanged, but Jerome Powell opened the door to a rate cut in September due to the slowing of price pressures in the US and signs of labour market weakness.
The UK and eurozone central bank chiefs may follow a similar path, while the Bank of Japan’s leader may be notable for any comments he may make on the recent rate hike in Japan and the associated market volatility that took place in early August.
What is the market impact?
Central bankers find themselves in a tricky spot at present. Investors may be pleased to hear talk of rate cuts, especially given the most recent US payrolls report, but Powell and his fellow officials will need to avoid the suggestion that they are worried about a sustained weakening of their respective economies.
If they succeed in pulling off this trick, communicating their expectations of rate cuts without suggesting a recession is more likely, then we may see stocks continue their recent strong performance.
All eyes will be on the US dollar – this has continued to decline as expectations of a US rate cut rise and US consumer price index (CPI) figures weaken. Recent losses have stabilised around the 102 level, the low from March, but a close below this could open the way to more weakness.