Market Update 29/08/2022 — The Economic Symposium: Jackson Hole
What is Jackson Hole symposium?
The Jackson Hole Economic Symposium has been an annual event held in Jackson Hole, Wyoming, since 1981 and is one of the longest-standing central banking conferences in the world. The conference is sponsored by the Federal Reserve Bank of Kansas City.
The Federal Reserve Bank of Kansas City is hosting this year’s Jackson Hole Economic Policy Symposium 2022 being held between August 25 and 27. The 2022 event, which marks the symposium’s 45th year, will focus on the theme ‘Reassessing Constraints on the Economy and Policy.’
Some of the past topics of consideration at the conference included:
Macroeconomic policy in an uneven economy (2021)
Implications of monetary policy (2020)
Challenges for monetary policy (2019)
Changing market structures and implications for monetary policy (2018)
Fostering a dynamic global economy (2017)
The conference hosts around 120 attendees annually, including central bankers, academics, financial market participants, and finance ministers worldwide. The initial goal of the Symposium was to provide a vehicle for promoting public discussion and exchanging ideas. Throughout the event’s history in Jackson Hole, attendees from 70 countries have gathered to share their diverse perspectives and experiences.
Why Jackson Hole?
When officials of the Federal Reserve Bank of Kansas City sought a location for an annual economic symposium in 1982, they chose Jackson Hole, Wyoming, for a simple reason: It had fly-fishing. Paul Volcker, the Fed chairman at the time, was known to enjoy the pastime, and it was hoped that the opportunity to do some fishing would draw Volcker away from Washington, D.C.’s late August heat. The ploy worked, and the Fed has held a conference there in late August ever since.
What the hype is all about?
Investors worldwide are eyeing the Symposium intently to gauge signs of what the near future might look like. The key challenge for the top central bankers, academics, and market participants from around the world will be the fight against inflation.
What is expected this year?
The meeting will see US Federal Reserve chair Jerome Powell address the current global economic challenges, and it is widely expected that the tone will be “hawkish”.
The direction taken by the US Fed generally percolates down to what the other central banks decide about their key economic policies, especially the lending rate, which is a key tool in fighting inflation. Central banks globally have been revising lending rates upwards periodically after the COVID-19 pandemic started ebbing to control the rising prices.
The July minutes of the Federal Open Market Committee (FOMC) showed that statements by members say that they won’t pull back until inflation comes down substantially. Investors will be looking for clues on how much higher US interest rates might need to go and for how long if inflation does not significantly fall from its current 40-year highs.
…versus The Doves
History shows that the event rarely moves markets in a big way. Investors were cautiously optimistic ahead of Fed chair Jerome Powell’s speech at the Jackson Hole symposium on Friday, with stocks rising slightly on Thursday as anticipation builds for any new clues on the direction of future monetary policy. Despite the excitement around Jackson Hole, the conference is historically “unremarkable as an equity market catalyst” and is unlikely to change market expectations about more rate hikes later this year.
“Everyone remembers Powell’s mistake,” when the Fed chair stuck to the “inflation is transitory” narrative at last year’s Jackson Hole Symposium, “so he will be extra motivated to make sure his message is clear and aggressive about fighting inflation.”
What was delivered?
The speech might last for only 8 minutes. However, Federal Reserve Chairman Jerome Powell mentions inflation almost 44 times in his speech. Powell delivered a stern commitment to halting inflation, warning that he expects the central bank to continue raising interest rates in a way that will cause “some pain” to the U.S. economy.
Powell highlighted in his speech “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
“We are taking forceful and rapid steps to moderate demand. We will keep at it until we are confident the job is done,” James Powell further highlighted that restoring price stability would likely require a restrictive policy stance maintained for some time. Central Bank is likely to continue increasing interest rates and keeping them elevated to combat inflation.
The bank will “use our tools forcefully” to attack inflation, which is still running near its highest level in more than 40 years. “We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%,” he said. Restore price stability will probably require quite a longer period in maintaining a restrictive policy stance.
Interest rate outlook
Markets are awaiting the Fed’s next meeting in September to see if the Federal Open Market Committee will enact a third consecutive 0.75 percentage point increase. Powell said the decision “will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.”
Even with a series of four consecutive interest rate increases totaling 2.25 percentage points, Powell said this is “no place to stop or pause” even though benchmark rates are probably around an area considered neither stimulative nor restrictive to growth.
Traders are currently pricing a close call between a half-point and three-quarter point increase. As of Friday morning after Powell’s speech, the probability of a 0.75-point move was at 54.5%.
The Impact of Powell's Jackson Hole Speech
The US Federal Reserve Chair, Jerome Powell’s speech at the economic symposium in Jackson Hole has made it abundantly clear that the US central bank will continue aggressive monetary tightening where US central bank will keep raising interest rates, and probably leave them elevated for a while to reduce inflation as long as it takes to bring inflation towards the long-term goal of 2%.
In the previous week, Financial markets traded sideways the entire week, waiting for Jerome Powell’s Jackson Hole speech on Friday. The speech might be short, but the impact was profound. On Friday in the U.S, stocks declined sharply, and the Dow Jones Industrial Average plunged 1,008 points or 3.03% to 32,283.40. The S&P 500 fell 3.37% to 4,057.66 and the Nasdaq Composite dropped 3.94% to 12,141.71.
Also, the Fed is not worried about the stock market, and further declines would not trigger a reaction from the Fed regarding the rates.
On the other hand, The US dollar’s rally resumed, as it gained against its peers.
Jackson Hole's impact on cryptocurrencies
Bitcoin was trading at 19,999 on Sunday. That’s after a two-day drop of 7.6%, moving in tandem with US stocks on Friday after Fed Chair Jerome Powell’s speech at the Jackson Hole conference. Bitcoin extended its drop below $US20,000 ($29,130) on Monday as part of a wider cryptocurrency-market retreat. Second-biggest crypto Ether slid as much as 4.1% on Monday to $US1,422.67, continuing a decline from around $US2000 a couple of weeks ago. The total crypto market cap has also plunged after peaking at over $3 trillion in November 2021 and is now down to just under $1 trillion.
“If Bitcoin doesn’t hold $US20,000, then $US18,900 comes into play before a date with the June intraday low of $US17,600,” said Antoni Trenchev, co-founder and managing partner of Nexo, in a note Sunday. “Close below that, and it doesn’t look pretty.”
The Asia Pacific response to the Economic Symposium
The Nikkei 225 in Japan slipped 2.9% and the Topix index declined 2.06%. South Korea’s Kospi fell 2.39% and the Kosdaq index dropped 3%. In Australia, the S&P/ASX 200 fell 2%. Mainland China’s Shanghai Composite dipped 0.72% and the Shenzhen Component lost 0.68%. Hong Kong’s Hang Seng index shed 1.07% and the Hang Seng Tech index dropped 1.43%. MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.83%, while the Japanese yen traded at 138.47 per dollar.
The Impact on US Billionaires
Powell’s speech had hit the richest harder, in just a span of 8 minutes, the impact had slashed American Fortune People by $78 B. Based on Bloomberg Billionaire’s Index, Jeff Bezos saw $6.6B erased from his wealth- the most amount on the Billionaire list lost, the same goes for Warren Buffet with $2.7B. The same fate continues with other Titan Company’s Face, Elon Musk- The Man of Tesla saw a swipe off $5.5B, and Bill Gates saw a decline of $2.2B.
The currency market also reacted to the Fed’s message. More precisely, the US dollar rallied against its peers, and it might just be the start of a new leg higher after the consolidation during the summer months.
All in all, Powell’s speech at Jackson Hole was everything that markets expected: powerful, concise, and with strong implications for financial markets. He highlighted the Fed’s decision in September “will depend on the totality of the incoming data and the evolving outlook.”
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