The annual Jackson Hole Economic Symposium is sponsored by the Federal Reserve of Kansas City and is annually held in Wyoming. It is an exclusive central bank conference which fosters open discussions on global policy matters. The event is closely watched by market participants and has the potential to affect the stock and currency markets.
There is no doubt that this event will likely be the most important one for the global markets this week. However, what makes it more special and relevant this year is how appropriately the title “Challenges for Monetary Policy” reflects the reality of the recent challenges faced by policymakers.
Investors have been navigating in an extremely volatile environment in the past few weeks, gripped by mounting worries of recession and trade tensions that are threatening the harmony of the global trade system.
Ten years after the financial crisis, monetary policymakers are forced to look back and assess the challenges of normalising monetary policies. Over the years, central banks across the globe have used both conventional and unconventional monetary policies to support their domestic economy in the face of the financial crisis.
However, the current headwinds and inflation dynamics are making it difficult for policymakers to chart a course of monetary policy and begin removing policy accommodation. Only a year ago, central bankers were talking about rising interest rates. A global slowing economy on top of trade tensions is forcing them to seek refuge with more easing monetary policies.
Despite steady economic growth over the years, global interest rates have not been able to return to levels seen before the financial crisis.
Market participants are eagerly waiting for the Federal Reserve Chairman, Jerome Powell, to deliver its speech on Friday. The July rate cut was less-dovish than anticipated as the Fed Chair surprised the markets with a “midcycle” adjustment.
A lot has happened since his last remark. We saw recession fears crawling back in the financial markets which triggered a rout in the stock market, and a rally in the bond market. The 2-Yr US government bonds dropped below the 10-Yr yields for the first time since the financial crisis. The 30yr Treasury Yield also briefly fell to a record low.
The Symposium will help market participants assess and process the meaning of “midcycle” and see if the Fed will adjust their remarks following the recent developments in the markets. Investors are also hopeful to see the comments on the recession risk.
So when Jerome Powell delivers his annual speech at Jackson Hole this Friday, he can either calm nerves or create more panic.
By Deepta Bolaky
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