Jackson Hole Prep

Macro Perspectives: Fri 27 Aug 2021

Jay Powell will make a prepared speech today at the annual Kansas City Fed global economic symposium. This event, typically hosted in Jackson Hole (but online this year), has a history of gathering the world's most powerful central bankers - there is a history of major policy signalling.

In 2010, Bernanke telegraphed QE2 in his Jackson Hole Speech. Two years later, he telegraphed QE3 at the event.

In 2014, Mario Draghi (head of the European Central Bank) telegraphed aggressive action from the ECB to battle deflationary pressures - a bond buying program was formally announced just days later.

Interestingly, the Kansas City Fed moved the event to Jackson Hole, back in 1982, in effort to convince Paul Volcker to attend - the Fed Chair and a fly fishing enthusiast. Volcker was, at the time, aggressively battling high inflation with very aggressive interest rate hikes.

Of course, we enter this Jackson Hole meeting with the most dangerous inflation we've seen since the Volcker era.

As mentioned in my previous notes, just last week Powell talked specifically about Volcker in a town hall meeting. He admiringly called him "the most distinguished public servant, in economies, in [Powell's] lifetime." The admiration comes because of his courage to take on the unpopular, but necessary path of beating what Powell calls The Great Inflation.

Volcker beat double-digit inflation with short-term interest rates that approached 20% - and in doing so, he took the economy into recession - but he also set the stage for a long and very good period of development for the U.S. economy.

Now, we already know the Fed has pivoted, over the past month, in acknowledgement of the aggressive inflation already baked into the economy. On that note, I suspect we'll see Powell, once again, bring up the Volcker era in his prepared speech on Friday.  If he does, the markets may have to recalibrate for a Fed that is beginning to see a higher risk (than previously) that they may have to become inflation fighters in the near future.