Jackson Hole Preview: Beautiful Backdrop for a Bore

It is good to be transparent, so here is a confession: We will be watching this weekend’s central banking conference in Jackson Hole like hawks^[i] … to see who looks most at-ease in Wranglers, boots and a plaid utility shirt. And we will of course review Fed head Jerome Powell’s speech. But, unlike so many who think this is absolutely crucial to markets, we expect a pretty uneventful get together. While Fed heads have occasionally used Jackson Hole to make big pronouncements, this is the exception, not the rule. Most of the time, the symposium is boring and the comments are vanilla oatmeal, and we think investors’ time is better spent elsewhere.

Jackson Hole looms large for a few reasons. One, it is pretty! Who doesn’t love a backdrop of tall mountains and wide-open spaces, with the tinge of America’s rugged west? Two, it is like watching global policymakers at summer camp, one of the rare times they are all in the same place with a chance to catch up properly, and it is fun using the pictures for funny caption contests. Three, the investing and economics world is obsessed with monetary policy. People think short-term interest rates are the be-all, end-all, with markets hinging on what the Fed and its international friends do next. And four, it actually was kind of a big deal in 2010, when former Fed head Ben Bernanke hinted strongly at a second round of quantitative easing (QE2) there. And in 2020, when Powell unveiled the Fed’s new inflation targeting approach at the virtual version. But for the most part, the Fed head’s speech is pretty ho-hum.

This year, Powell’s topic is the state of the US economy. Aka, the same darned thing he expounds upon in every post-meeting press conference. But this time, everyone is on tenterhooks to see if he drops hints about the Fed’s September meeting. People also want to see if the much-discussed July jobs report—and its triggering of former Fed economist Claudia Sahm’s recession indicator—has diminished the Fed’s view and made a -0.50 percentage point cut likelier than the -0.25 ppt cut markets have seemingly penciled in. They want hints as to whether the market’s freakout after the Bank of Japan’s tiny July 31 rate hike has changed the Fed’s tactics.

Perhaps we will get some of this. Or all of this. Or none of it. Powell surely knows an entire industry will hang on his every word, which could incentivize discretion and what former Fed head Alan Greenspan would characterize as mumbling with great incoherence—aka, indecipherable Fedspeak. The Fed and other central banks took a lot of incoming in recent years for defying their own forward guidance, basically saying one thing and doing another. With nearly a month between Jackson Hole and the Fed’s September 17 – 18 meeting, and with a lot of data set to come out between now and then, we could see the Fed head not wanting to paint himself into a corner.

We can’t help but smell a whiff of recency bias in all of the frenzy. When markets pulled back sharply after the BoJ’s move and the July jobs report, there was a lot of talk about the Fed being behind the 8-ball. Headlines warned recession was imminent if the Fed didn’t act, and even if it did, it may be too little, too late. Some wondered whether an emergency meeting could or should be in the cards. But the freakout was short lived, and as we write, markets are back within striking distance of July 16’s high. Recession fears have eased in the wake of several fine data reports. And it all happened without a single rate cut, showing how silly the initial reaction was. Clinging to Jackson Hole as a rate-cut harbinger seems like a last-ditch attempt to keep the Fed meaningful.

Even if Powell does drop a strong hint, we wouldn’t read much into it. Again, there is a lot of new data for our data-dependent Fed to parse between now and then. Plus, Powell is just one vote. Consider his British counterpart, Bank of England (BoE) Governor Andrew Bailey, who will be speaking later Friday. Some pundits hold out hope that he, too, will hint at future policy, but his official topic is a retrospective of the BoE’s recent actions and their impact. We suspect this is because the BoE’s August 1 rate cut was a 5 – 4 decision that almost didn’t happen. How can you give crystal-clear forward guidance when you are one vote on a committee of people with their own disparate views and opinions of data and correct policy? Even with the Keynesian groupthink that has infected central banks lately, it is impossible.

Again, we aren’t dismissing the possibility Powell says something concrete, meaningful and useful. But rather than hanging on everything he says and diagramming sentences like you are back in middle school English class, we think you are fine skipping to the highlights and dialing down the importance. Neither stocks nor the economy hinge on rates, as the last 22-plus months since this bull market began demonstrate.