Yesterday, the Federal Reserve (Fed) kicked off its annual Economic Policy Symposium in Jackson Hole, Wyoming. Fed Chair Jerome Powell is scheduled to speak at 10:00 ET today in one of his most publicized speeches of the year.
Much has changed since the Fed’s last gathering at Jackson Hole. U.S. economic growth has accelerated, but a slew of domestic and global headwinds have popped up that complicate the Fed’s gradual approach to tightening monetary policy. As shown in the LPL Chart of the Day, these headwinds (most recently, Turkey’s currency crisis) have led to a decline in market expectations for a fourth interest rate hike at the Fed’s December meeting.
“The Fed has demonstrated willingness to be flexible with monetary policy given global conditions,” said LPL Chief Investment Strategist John Lynch. “While we believe Turkey’s crisis will have a minimal impact on the broad emerging markets economy, the Fed’s context around the situation may help guide investors on the extent to which policymakers are incorporating it into their decision-making process.”
We will be monitoring developments from Jackson Hole, especially those concerning the following topics:
Global stability: Powell’s speech is his first chance to comment publicly after the recent developments in Turkey. The Fed must consider global stability, so Powell may hint at how the Fed is weighing the impact of tariffs, a strong U.S. dollar, and emerging market stability when determining its future monetary policy approach.
Other central banks: Policymakers from central banks around the world typically attend the symposium, so investors may also get clues from these policymakers’ public comments on their plans for monetary policy. In a 2014 Jackson Hole speech, European Central Bank (ECB) president Mario Draghi dropped hints ahead of the ECB’s implementation of its quantitative easing program, which started in March 2015.
Inflation and the neutral rate: The pace of inflation and its impact on monetary policy remains one of investors’ biggest questions. While measures like wage growth and core personal consumption expenditures lag the Fed’s target levels, the Consumer Price Index and the Producer Price Index have neared their highs of the economic cycle. Discussions in the Fed’s most recent meeting indicated there’s considerable ambiguity around what the Fed now considers as its “neutral rate,” or the point where monetary policy neither stimulates nor restrains economic growth, so any comments on inflation could influence market expectations for future hikes.
Stay tuned for a summary of highlights from Jackson Hole in next week’s Weekly Economic Commentary.
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This research material has been prepared by LPL Financial LLC.
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