In contrast to the headlines issued beforehand (“Chair Yellen Set to Deliver What Could Be Historic Speech in Jackson Hole”), the events that unfolded at the Jackson Hole Economic Policy Symposium largely left the market yawning (subsequent headline: “Yellen, Draghi Offer No Clue on Monetary Policy”).
Expectations that central banks would reveal major shifts in monetary policy while at this annual symposium in Wyoming were not unfounded, but a look back at history tells us that such news is certainly not the norm.
The symposium, now in its 40th year, has become a major event for the financial press, but it’s interesting to note that at the very beginning it was a sleepy affair, hosted by its ongoing sponsor, the Kansas City Fed, which focused largely on economic topics relevant to that Fed district’s mainly agricultural economy at the time.
Its profile was raised a bit in 1982 when it was relocated from Kansas City to Jackson Hole, with the objective of luring then-Fed Chairman Paul Volcker to make a trip west for the event, as he was an avid fly fisherman. The legendary Snake River runs the entire length of Jackson Hole and is regarded by avid anglers as “dry fly heaven.”
When Volcker arrived, he encountered a domestic academic gathering, but it gradually became more international in nature with the addition of central bankers from around the world, a process that accelerated under former Chairmen Alan Greenspan and Ben Bernanke.
Move to prominence
Fifteen years on, in August of 1997, Jackson Hole had become a truly global affair, with central bankers from both developed and emerging markets focusing on the major topic of “Maintaining Financial Stability in a Global Economy.” Discussions at the event included the prescient “Risks and Benefits of Managing a Pegged Currency.”
This time, the symposium was catapulted to front page news as it occurred in the midst of the Asian debt crisis, which rolled into the broader emerging market debt crisis of 1998, culminating in the Russian default and the failure of Long-Term Capital Management.
Fast forward another seven years and in August 2005 the major topic was “The Greenspan Era: Lessons for the Future.” The event was largely a paean to Greenspan’s long tenure, but a dissenting view was presented by then-Chief IMF Economist Raghuram Rajan, who warned in a major speech that much of the innovation developed in the financial system during Greenspan’s tenure had left it in far riskier shape than ever before — of course, foreshadowing what ultimately became known as the global financial crisis.
Certainly, under Chairman Volcker no policy shift was ever signalled at Jackson Hole, nor anywhere else for that matter. “Open mouth” policy began under Greenspan and on occasion both he and his successor, Bernanke, would signal a policy shift at the August event, but a review of history shows it is clearly not typical. Remember, Chairman Bernanke surprised Fed watchers by not even attending the symposium in his last year in the job.
The last policy telegraphed at Jackson Hole was by Fed Vice Chairman Stanley Fischer in August of 2015 when he confirmed that the US central bank was moving in a more hawkish direction.
While we saw no such major pronouncements this year, the content of papers presented at the symposium is indicative of where the world’s central bankers think we are headed. Major topics included “Fostering Business Dynamism, Ensuring Competitive Markets” and “Balancing Short-Term Fiscal Stimulus with Longer-Term Stability.”
It appears from the topics at this year’s symposium that the central bankers themselves are very much focused on this broader set of policy initiatives and believe that the heavy lifting of monetary policy is done.
We at Neuberger Berman have been saying for some time that a transition is under way from aggressive central bank policies toward broader structural and political solutions required to drive growth.
In our view, among the important conclusions to draw from this year’s symposium is that, while messaging has become an important tool in modern monetary policy, it is used by central bankers when required for maximum efficacy, which often doesn’t correspond to a particular time on the economic calendar, or a particular event.
A second conclusion is that, when looking at 40 years of history at Jackson Hole, in many cases its policy papers and remarks present the big picture, which is often more important than current messaging on monetary policy.
Finally, this year’s topics suggest to us that the world’s central bankers are pointed in the direction of handing off responsibility for global growth to a broader set of policymakers — something that, given the history of the last seven years, is actually quite exciting.
Brad Tank, Chief Investment Officer — Fixed Income, Neuberger Berman