Jackson Hole, Wyoming is a bizarre choice for the arguably most important economic symposium held every year. According to Bloomberg Markets and Wikipedia, the Federal Reserve Bank of Kansas City started holding its annual policy meeting at the Jackson Lake Lodge to attract prior Chair of the Federal Reserve Paul Volcker who was an avid fisherman. With the tradition of Federal Chair members issuing some clues, if not guidance, about their intentions, the Jackson Hole meeting of 2016 was a prime time to catch new details from current Fed Chair Janet Yellen.
Investors did get a few new tidbits from Yellen’s keynote address and other voting members.
First, the odds of a September hike appear to be going up as growth seems to be steady, although still sub-par. In Yellen’s words, the case for a rate hike “has strengthened in recent months”, but will “depend on the degree to which incoming data continues to confirm the Committee’s outlook”. The Fed seems to be registering the problem that leaving rates low during times of relative ease is going to make it harder for them to have any credible response when and if times get tougher. In other words, the accommodative monetary policy we’re using right now is using up their dry-powder now, and might leave us in trouble if we hit a more hostile environment. This is reassuring since inflation, while still subdued, is finally heading up closer to the unofficial targets of 2% after a huge dip in 2015 because of cheap oil.
Second, both Yellen and other voting members are trying to think outside the box as to what other extraordinary types of monetary policy can be used to alleviate a slowdown. San Francisco Fed President has introduced higher inflationary targets. Former Fed Governor Stein emphasized fiscal response to future crises since monetary policy is already providing so much support.