Jackson Hole Symposium Reassures Markets and Boosts Greenback
Mon, Aug 30, 3:51 PM ET, by ForexTraders.com
For every year since 1978 the Federal Reserve Bank of Kansas City had held an increasingly influential economic symposium in the city of Jackson Hole, Wyoming. The so-called Jackson Hole Symposium originally focused on agricultural issues, but since 1981 has had a much broader range of economic topics. The official topic for the 2010 symposium was "Macroeconomic Challenges: The Decade Ahead." Nevertheless, ten years may be a long time to provide a forecast for, given the current uncertain world economic environment. The symposium began on Thursday, August 26th as news broke that U.S. GDP had grown by only 1.6 percent in the second quarter of 2010. The event brought together participants from over 40 countries that included Jean Claude Trichet, the European Central Bank president, and Masaaki Shirakawa, Governor of the Bank of Japan, among other important finance officials. Nevertheless, Shirakawa left the conference early to attend an important policy meeting in Tokyo. The Bank of Japan may soon decide on taking intervention measures in the currency markets to help stem the recent rise in the Yen. Bernanke's SpeechIn a keynote speech, Ben Bernanke - the governor of the U.S. Federal Reserve Bank - stated that, "A return to strong and stable economic growth will require appropriate and effective responses from economic policymakers across a wide spectrum, as well as from leaders in the private sector. Central bankers alone cannot solve the world's economic problems." He added that the FOMC had the tools "available to provide further policy accommodation--including longer-term securities asset purchases," and that "regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery." Bernanke also discussed the Fed's options for further easing, citing four of them: (1) Conducting additional purchases of longer-term securities, (2) Modifying the Committee's communication, and (3) Reducing the interest paid on excess reserves. A fourth strategy - specifically, that the FOMC increase its inflation goals - was proposed by other economists and was briefly mentioned at the symposium. Bernanke concluded by saying that the FOMC would, "use its tools as needed to maintain price stability - avoiding excessive inflation or further disinflation - and to promote the continuation of the economic recovery." Symposium Host Hoenig SkepticalWhile Bernanke seemed confident of the FOMC's ability to use additional stimulus methods, some that included Thomas Hoenig, President of the Kansas City Federal Reserve Bank and the host of the symposium, were skeptical of the need for more stimulus on the part of the Fed. Hoenig has been the only dissenting vote on the FOMC regarding the Fed's monetary policy and interest rate decisions over the past year. He has consistently voted against the Fed's "extended period" policy for low interest rates and has also voted against further easing at each monthly meeting of the FOMC. In an interview with Bloomberg before the symposium began, Hoenig stated that, "I have long said the recovery would be modest." He went on to observer that, "My views haven't changed. It will be modest. I think people have to realize that. We are going through major adjustments." In the same interview, Hoenig said he still expects the U.S. economy to grow at a three percent annual rate, as he forecast a month ago. Financial Market Reactions to the SymposiumThe U.S. stock market had declined considerably before Bernanke's speech on Friday, with the Dow Jones Industrial Average falling below its psychological 10,000 mark on Thursday. Nevertheless, U.S. stocks rallied strongly after the speech, giving the Fed chief the market's seal of approval for more stimulus measures, if needed. The currency markets also took a favorable view of the speech as the Greenback gained ground after it. Overall, the symposium provided the Fed with the opportunity to assure the already nervous markets that it was committed to defending the U.S. economy with whatever measures it can to help with the waning recovery. Regardless of this climate of "unusual uncertainty" and in light of the continuing deterioration seen in recent economic releases coming out of the United States, many experts expect U.S. unemployment levels to start heading back up, probably just in time for the November elections.
SDI Glossary: "price" Definition
SDI Glossary: "the Fed" Definition
SDI Glossary: "Federal Reserve Bank" Definition
SDI Glossary: "GDP" Definition
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