What will Powell say at Jackson Hole?
What will Powell say at Jackson Hole?- The market is focused on what Fed Chairman Jerome Powell will say at Thursday’s Jackson Hole conference on the new inflation strategy
Fed Chairman Jerome Powell will speak at this week’s Jackson Hole symposium on the central bank’s long-awaited, new inflation strategy-focused monetary policy framework assessment.
The speech, which will be held at the Kansas City Fed’s digital event this year, will be broadcast live this Thursday at 09:10 New York time, according to the Fed’s weekly calendar.
The Fed spent all of 2019 and much of this year conducting its first comprehensive framework assessment, driven by worryingly low inflation and interest rates that have reduced the central bank’s ability to fight the recession.
Policymakers discussed a more relaxed approach to inflation, which could occasionally exceed 2 percent in order to get closer to the average target.
Roberto Perli, a former Fed economist and partner at Cornerstone Macro LLC said: “One could possibly make a review of what and why the committee was considering during the review. Then, they could summarize the somewhat exceeding of the apparently agreed target.”
Minutes of the Federal Open Market Committee’s (FOMC) July 28 – 29 meeting released Wednesday showed officials were moving ahead with a new statement on long-term goals and strategy. This signals the end of the strategy assessment.
Officials said: “key to finalizing all changes to the disclosure in the near future. Such a step would help guide the committee’s future policy moves and communications.”
Economists say it’s premature for Powell to make a clear announcement in Jackson Hole. They think this will be to pre-empt the role of the FOMC’s meeting on September 15-16.
A delicate situation
“Powell is in a delicate situation,” said Michael Woodford, a Columbia University economist who has previously given a speech in Jackson Hole. He will probably want to show something about how the expectation for the framework assessment is shaping up, without saying too many decisive things about what he will announce at the September meeting.”
The Fed first pronounced its 2 percent inflation target in 2012. At the time, officials used it to mean that 2 percent would be targeted, no matter how long or to what extent the target was missed. But the Fed’s preferred inflation gauge has consistently been below target, averaging 1.4 percent since the target was first set.
Economists said setting an average target would contribute to the return of expectations to the average, pledging to compensate for periods below inflation. This is a less radical idea than other options, such as negative interest rates, discussed throughout the assessment. Although this was an idea put into practice by central banks in Europe and Japan, it was never considered appropriate for the United States by Fed officials.