Will Jackson Hole become a dovish event?

Chair of Federal Reserve, Jerome Powell, speaking on the economic outlook at the upcoming central bank’s Jackson Hole economic symposium, will dominate market direction. Fed officials appear on track to begin reversing their easy-money policies later this year, but several wild cards could alter the timing of their plans, including higher-than-expected inflation and rapidly rising Covid-19 cases associated with the spread of the Delta variant.

Gold rose as investors anticipate the annual Jackson Hole event happening this week for more insights into the Federal Reserve’s policy outlook. Gold’s rally also suggests some market traders do expect a dovish Jackson Hole event in the end. Bitcoin joined in the rally to top the closely watched $50,000 level again as the cryptocurrency market recovers from a disorderly rout just three months ago.

Dallas Fed’s President, Robert Kaplan, said last Friday that he is open to adjusting his view that the Federal Reserve should start tapering its asset-purchase program sooner rather than later if the Delta variant persists and hurts economic progress.

“I’ve got to be agile, open-minded, avoid being rigid about if I saw that the Delta variant was going to be persistent enough, or unfold differently, say than it has in other countries -- the UK or India -- and be more challenging to where it starts to affect demand,” he said in an online event hosted by Texas Tech University’s Rawls College of Business. “I’ve got to take that into account and will adjust my views accordingly.” 

The Fed is currently buying $80 billion per month in Treasuries and $40 billion in mortgage-backed securities to inject liquidity into the market and bolster an economy rocked by widespread lockdowns. Kaplan has mentioned that he favours gradually reducing those purchases from October, as the support is leading to unintended consequences like an elevated housing market and higher rents.

Fed’s Chair, Jerome Powell, is expected to hint at prospects for an eventual reduction of monetary stimulus when he gives a speech this Friday, 27^th August 2021. The address allows him to shed some light on officials’ intentions, after minutes of the July 27-28 meeting showed most of them thought it is appropriate to start slowing bond purchases later this year. The symposium, being held virtually again amid a coronavirus outbreak, will take place from Thursday to Saturday, 26^th – 28^th August.

If the Jackson Hole economic symposium becomes a more dovish event than expected, we might be able to see a sell-off in the US dollar.