The peaks of the Rocky Mountains surrounding the Jackson Hole valley (Wyoming) will once again become, starting this Thursday, the meeting point for the major central banks. At the forefront will be the president of the Federal Reserve of the United States (Fed), Kevin Warsh, who is making his debut as host at this annual forum, held on the last weekend of August since 1982 in this mountain resort, and which on this occasion arrives marked by the turbulence affecting US debt and by the new communication strategy of the US central banker.
Thus, although the chosen 'leitmotif' for the 49th edition of the Jackson Hole symposium, which will take place from today until Saturday, is "Financial Innovation: Implications for Payments and Policies," investors will be attentive to any signs regarding the next steps of the Federal Reserve, which will hold its first monetary policy meeting after the summer on September 16.
In this context, the speech by Kevin Warsh, scheduled for tomorrow Friday, takes on special relevance, as it is expected that the Fed president will provide some signal about the direction of interest rates in the US, as well as his assessment of the recent shocks in the US bond market, after the sharp increase in the yields demanded, once the country's debt has surpassed the historic threshold of 40 trillion dollars (34.3 trillion euros).
On the other hand, although Christine Lagarde will not participate this summer in Jackson Hole, the European Central Bank (ECB) has confirmed to Europa Press the attendance of executive committee member Isabel Schnabel, who will also speak on Friday, in addition to the chief economist, Philip R. Lane, and the vice president, Boris Vujcic.
Since 1978, the Federal Reserve Bank of Kansas City has organized a symposium to analyze the challenges facing the economies of the United States and the rest of the world. Since 1982, this meeting has been held at the Jackson Lake Lodge, within Grand Teton National Park (Wyoming).
Opportunity for Warsh
"The Jackson Hole Symposium provides Kevin Warsh with the opportunity to refine his communication strategy, which has recently been characterized by deliberate opacity. However, it is still unclear whether he is willing to do so," point out David Kohl, chief economist, and Dario Messi, director of Fixed Income Analysis at Julius Baer, for whom the event occurs "at a delicate moment for the bond markets," which are still digesting the signal from the repurchase of US Treasury bonds.
In this regard, they recall that, although historically the Jackson Hole meeting has only had a decisive impact on the market on rare occasions, they warn that "when it has, the impulses have been considerable and lasting," emphasizing that expectations for this year's edition "are high," especially after the "unfortunate communication from the Fed in July," which has left investors with little visibility on the future of monetary policy.
"The hurdle to meet market expectations is likely to be high. Therefore, even in the absence of new and significant information, or perhaps precisely because of it, the event could once again influence the markets," they add.
For his part, Michael Pearce, chief economist for the US at Oxford Economics, believes that, although it is unlikely that Kevin Warsh's speech will provide clear signals about short-term monetary policy, it could help outline his plans to reform the Fed's operating framework and operations in the long term.
"In July, Warsh stated that he had not yet decided what kind of speech he would deliver. Previous chairs have taken the opportunity to present general ideas about the economy, while others have used it to contextualize the fall monetary policy meetings," he recalls.
Therefore, Pearce finds it more reasonable that Warsh uses his intervention on Friday to report on the progress of the Fed's working groups and on some of the more significant issues he has been hinting at in recent months.
"We are not getting our hopes up too much, but it would be helpful to understand how Warsh is weighing the potential inflationary and disinflationary impacts of AI, and whether the level, trajectory, or breadth of inflation are the most relevant factors for the Federal Reserve's future actions," he adds.
Likewise, from MFS Investment Management, Erik Weisman, chief economist, and Kish Pathak, fixed income analyst, argue that the main challenge for Warsh is not so much the lack of guidance on the future of monetary policy as the absence of a clear definition of his reaction function.
"Without a credible set of possible responses to the new information that may arise, the promise of price stability becomes empty of content," they warn, while noting that "defining a monetary policy reaction function in overly rigid terms could be counterproductive."
At the same time, if the Fed chairman decides to focus his message on the issues that the working groups are studying, MFS Investment experts believe that the market reaction could be negative, as it could be interpreted as a way to evade existing doubts about the credibility of the Federal Reserve.
"In any case, Chairman Warsh faces a delicate situation," they conclude.