Central Banks: A bear trap in Wyoming? - Westpac


The Kansas City Fed has been hosting its annual economic symposium at scenic Jackson Hole, Wyoming since 1978 and market interest in the conference is surely heightened by its late August timing – in the peak northern hemisphere summer vacation period, any major gathering of central bankers would draw substantial attention, explains Sean Callow, Research Analyst at Westpac.

Key Quotes

“As the KC Fed itself says, the global central bankers discuss “a topic that is not necessarily of immediate concern” so it is only the occasional year that Jackson Hole is pivotal for markets.”

“What about this year? Fed chair Yellen speaks Friday morning local time on financial stability. Such a topic doesn’t hint at much market response, though there is still scope for Fed officials to do side interviews which could focus on the monetary policy outlook. We suspect that senior officials will still sound like FOMC VC Dudley last week, arguing that rates should be raised again this year since the job market remains tight (hard to dispute) and recent weakness in inflation will prove transitory (more debatable).”

“One of the Fed’s excuses for not hitting its 2% inflation target – an unusually steep decline in cellphone costs. The debate will continue, but if the Fed mood at Jackson Hole is in line with our baseline view of announcing the start of balance sheet reduction next month and then hiking in Dec, then USD should firm against major currencies. EUR/USD for instance could be vulnerable if ECB president Draghi steers clear of any hints about the 7 Sep decision.”

“Beyond Wyoming, it remains impossible to ignore US politics, with e.g. USD/JPY bouncing on Steve Bannon’s departure from the White House, then falling on President Trump’s threat to shut down the government if Congress doesn’t approve funding for the border wall. Next week’s headlines are anyone’s guess, but the market focus will be intent on the return of Congress on 5 Sep, with a debt ceiling to be raised and a government to be funded.”

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