Jackson Hole Symposium: Eyes on Draghi and Yellen - BBH

The highlight of what has been a quiet week is at hand as the Jackson Hole Symposium begins today, but the keen interest is on tomorrow's speakers and especially on Draghi and Yellen, according to analysts at BBH.  

Key Quotes

“Yellen is scheduled to speak at 10:00 am ET and Draghi at 3:00 pm ET.    Expectations appear quite modest going into the confab, and for a good reason.  Reuters reported earlier that Draghi would not address monetary policy.  The consensus narrative in the market is that the ECB will be taking a step toward the exit.  Some see that exit also being forced by the limits of country exposure.”  

“We gently disagree.  We see the glass as more than half full and increasing.  That is to say, that ECB's balance sheet has not peaked, and the divergence between its balance sheet and the Fed's has also not peaked.  At the current pace, the ECB will buy 240 bln euros of assets between Sept 1 and the end of the year.  The announcement we expected from the ECB in early September is that it will extend its purchases but at half the pace for the first half of 2018.  This would add another 180 bln euros to the ECB's balance sheet.”

“Meanwhile, few now doubt that the FOMC has reached a consensus to begin letting its balance sheet shrink.  Remember in this process; the Fed will not sell a single note or bond.  What it will do is simply not rollover the full amount of Treasuries or MBS that are maturing.  It is meant to be the least disruptive as possible.   There has been some suggestion in light of Trump's threat to close the government that such an event would delay the Federal Reserve.”

“Given the congressional calendar and what are still contentious issues, the FOMC meeting that concludes on September 20 will likely make its decision before the debt ceiling is lifted and new spending authorized.  The implementation of the FOMC's balance sheet operation is very small and, unless there is a protracted shutdown, which is not the most likely scenario, the vagaries in Washington should have little impact.”