Understand the importance of Jackson Hole and what has changed since the last Fed meeting

Starting this Thursday (25), the Jackson Hole symposium is the focus of the market this week, and will feature a speech by the current president of the Federal Reserve , Jerome Powell, on Friday (26). With more than 40 years of history, the meeting has become a tradition on the agenda of the Central Bank of United States .

The title of this year’s symposium, which runs until Saturday (27), is “Reassessing restrictions on the economy and politics”.

Performed annually, Powell will talk about an economy quite different from that of a year ago. In 2021, the mayor highlighted that the US economy was progressing towards the conditions for a reduction of emergency support programs during the pandemic.

At that time, the inflation was already showing signs of growth, but far from the highest levels in 40 years recorded in 2022. For this reason, Powell continued to adopt a discourse that the phenomenon was transitory, “confined to a relatively narrow group of goods and services”.

Powell maintained a position against an interest rate hike because of the chances of harming the recovery of employment in the country, which at the time was considerably far from full employment, in his view.

A year later, inflation soared, in part worsened by the war in Ukraine, and the Fed needed start a new cycle of high interest rates from March. Since then, interest rates have risen from the range of 0% to 0.25% per annum to 2.25% to 2.5%, with the market still expecting further highs through 2023.

At the same time, the job market, Powell’s major concern, has rebounded solidly, with the unemployment rate at 3.5%, a plateau of full employment and a 50-year low.

Investors are now focusing on possible signals the Fed chairman will give in his speech, amid bets that the United States will enter recession due to a slowing economy as interest rates rise.

Central bank officials have already indicated that the next rate hikes will be made depending on the data released between each meeting, thereby reinforcing the weight of indicators in market behavior and bets.

“What they expect to hear from Jay Powell is that the Fed will act to reduce inflation, but will be confident enough that it can reverse course early next year. I don’t think they’re going to hear that,” said Randall Kroszner, a former Fed governor and vice dean of executive programs and a professor of economics at the University of Chicago.

Instead, he said the Federal Reserve hopes that by raising interest rates quickly, it won’t have to raise them too much. “If that’s the case, they can avoid a significant downturn, but that’s not guaranteed,” he says.

“I think what Powell will try and do is continue his narrative about fighting inflation while trying to dissuade the market from the notion that the Fed has made a dovish pivot,” said David Norris, partner and head of credit at TwentyFour Asset. “I don’t think he’s going to surprise the markets with his statements.”

The Jackson Hole Story

In 1978, the Kansas State Federal Reserve Regional initiated a symposium to discuss the role of monetary policy in agricultural development.

More than 40 years later, the meeting has become an environment that annually brings together economists, politicians, businessmen and the presidents of the main central banks in the world to discuss important issues that affect the American and global economy.

Simão Silber, a professor at FEA-USP, says that the topics discussed at the event do not follow a rigid agenda, but are the “hottest of the moment”.

In the 1980s, for example, an issue discussed fluctuations in the exchange rate. dollar . In 2007, the topic was the real estate market and the influence of monetary policy, when the collapse of this sector generated one of the biggest economic crisis in history .

As early as 2021, the symposium discussed the uneven impact of pandemic in the population. “The idea was to discuss what government policy can do for minorities that have been hardest hit by the pandemic. Basically, it is the distribution of income that has worsened for the poor”, says Silber.

The professor says that the Jackson Hole symposium stems from the very autonomy that the Fed’s 12 regional banks have.

The event was created by the Kansas City regional, which is in the state of Missouri. The city hosted the first editions, being succeeded by two cities in Colorado and, from 1982, it happened in Jackson Hole.

The city is located in the state of Wyoming, next to the National Park of yellowstone . With about 11,000 inhabitants, the place became famous on the internet in 2016 after posting on YouTube a live broadcast of more than 80 cameras in the city, which continues to this day.

The year 1982 was important for the event not only because of the change of city, but also because it was the first year to count on the presence of the President of the Federal Reserve, thus attracting representatives of central banks from all over the world. What became the traditional Fed chairman speech began only in 1989.

Jackson Hole allows exchange of experiences between central banks

Silber considers that the event is “an exchange of ideas between central bankers”, which makes it quite influential, receiving representatives from more than 70 countries since 1982. “It has greatly influenced the way in which monetary policy has been carried out in the main countries of the world. ” he says.

For the professor, the symposium also reflects a movement from the 1970s, in which central banks gained more and more autonomy and power to influence the economy of countries, within the so-called floating exchange rate.

“The exchange of experiences, what works and what goes wrong, is very important in this scenario”, says Silber.

The professor says that, today, it is the central banks that “control” economic policy, so it is important to know what their presidents think. As an example, he says that a central bank can raise the interest rate without needing congressional approval, but an economy minister cannot approve plans and measures without the approval of the legislature.

With information from Reuters and CNN Business

Source: CNN Brasil

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