This past weekend saw the annual central bank conference at Jackson Hole, Wyoming.  The Economic Policy Symposium is one of the longest-standing central banking conferences in the world, bringing together economists, financial markets participants, academics, and central bankers from around the world.    

To foster the open discussion that the symposium is known for, attendance is limited to about 120 people, but due to the importance to the market of better understanding the mindset of key central bankers, media from around the world report on the event.    

This year’s event was different than most as most global central banks went into this meeting thinking about tightening, after more than half a decade of loosening policy.  News articles in the lead up to the event this year focused on what Janet Yellen would say in what may be her last speech at the symposium as the Governor of the Fed, as Trump has been quite vocal about his dislike of Yellen’s actions as a central banker.  The market expectations going into the meeting were high that Yellen would give an indication that tightening was going to happen faster than was being priced in.  

In the end, monetary policy wasn’t a major focus during the three-day gathering.  When it was discussed, the messages from the Federal Reserve and the European Central Bank stressed their gradual approaches to unwinding emergency-era stimulus as global growth picks up.  

Instead policy makers talked at length about the pros and cons of free trade and the safety net created since the 2008 financial market meltdown, which Trump wants to roll back.  Britain’s vote to leave the EU, the growth of populism, and what these may mean for the future of global growth were also focuses of the event.  

The threat posed by protectionism, which Draghi characterized as a ‘serious risk for continued productivity growth in the global economy’, was a key theme in the meeting, because weak GDP gains curb how high central banks can raise rates, thereby limiting how far they can cut rates to fight a recession in future.  

The global economy is in the best shape in a decade, with the Euro area, the US, and Japan all growing at between 2.0 – 2.2% annualized.   This is slow and steady growth, but given the lack of focus on monetary policy, and the concerns voiced about the headwinds to continued global growth, the market took the meeting as a message that monetary policy from the developed world’s central banks will remain accommodative, and any tightening of these policies will proceed with caution, as central bankers keep an eye on fiscal policy to gauge the direction of global growth.

Chart: US Dollar Index   
big picture 17.08.29

Source: Bloomberg  

With no sign that the Fed is guaranteed to tighten again in 2017, at the time of writing, the US Dollar index has lost 1.2% since the meeting’s start on Friday, contributing to the 11% decline since January of this year.  The market will now focus on economic data releases to see if inflation will start to show signs of increasing.

Author: John Glover