The Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole, Wyoming, involves an in depth.
Here are a number of the key takeaways from the conference:
Powell pivot point
Fed Chairman Jerome Powell’s highly anticipated speech reiterated expectations of a rate cut on the central bank’s next meeting on September 17-18. Strengthening of share prices and government bonds.
“It is time to adjust policy,” Powell said on Friday. “The direction is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the allocation of risks.”
Powell said he was more confident that inflation was on the right track to succeed in the Fed’s 2% goal, but acknowledged there had been an “unmistakable” slowdown within the labor market. “We do not seek or welcome a further slowdown in labor market conditions,” he said.
While Powell gave few details after the September meeting about how the Fed might approach borrowing costs, he stressed that the teachings learned ought to be focused on within the upcoming review of the central bank’s framework.
International perspective
Powell was not the one central banker to signal that rates of interest were on a transparent downward trajectory.
Bank of England Governor Andrew Bailey said on Friday that while it was “too early to declare victory over inflation,” the risks of sustained price pressures gave the impression to be receding. The UK central bank cut its benchmark rate of interest earlier this month, and his comments suggested he more confident about further rate of interest cuts.
Meanwhile, several members of the ECB’s Governing Council who were present on the conference said they’d support an additional cut in rates of interest next month. This group included Finland’s Olli Rehn, Latvia’s Martins Kazaks, Croatia’s Boris Vujcic and Portugal’s Mario Centeno.
The ECB lowered borrowing costs in June. Centeno described a call to ease in lower than three weeks as “easy” given the inflation and growth data.
Way forward
On the sidelines of the conference, several Fed representatives presented their current views on the economy and gave guidance on future developments.
Patrick Harker, president of the Philadelphia Fed, said the speed cuts should “methodically.” He agreed that it was time to cut interest rates, adding: “Just start the method and keep it going.”
Susan Collins of Boston expressed an analogous sentiment on Thursday, noting that a “gradual, methodical pace” of cuts was probably appropriate.
Lectures and panels
At its core, the three-day conference is academic in nature. Economists presented 4 research papers, all coping with the subject of “Reassessing the effectiveness and transmission of monetary policy.”
Given the increasing deal with employment, perhaps most relevant to the present economic situation is research by Pierpaolo Benigno of the University of Bern and Gauti Eggertsson, a professor at Brown University. They concluded that the labor market slowdown is reaching a tipping point where an additional slowdown may lead to a much sharper increase within the U.S. unemployment rate.
In a panel discussion on Saturday with Brazilian Roberto Campos Neto and Ida Wolden Bache of Norges Bank, ECB chief economist Philip Lane said the return to an inflation rate of two percent was “not sure yet.” Campos Neto meanwhile said tight labor market has made the duty of containing inflation a challenge.
