Every year our central bankers meet in Jackson Hole, Wyoming to discuss the latest research and most importantly, what to do with rates going forward. As you can imagine, the market waits intensely to hear what is said after the internal debate to help try and gauge what the direction of the Fed is going to be going forward. Here is a quick summary of what came out of this year’s summit.
Still Growing Slowly
Yellen confirmed that we are growing, albeit slower than hoped. This has left some persistent concerns about deflation but the Fed believes they still have the adequate ability to fight it off if need be using monetary policy. At this point, however, they are not suggesting using any of the more ambitious academic proposals of rising inflation targets, keeping larger balance sheets, etc.
Inflation Is Still Low
US inflation still remains below the 2% target that the Fed has set out as its target rate. The rest of the developed world is even below the US and there is worry that if our rate continues to drop, it will put pressure on the rest of the world. This is one of the main reasons why the Fed has been so cautious to raise rates.
Unemployment Is Good
The unemployment rate seems to have settled and it can be argued that we are now at full employment. Wages are beginning to increase at a rate faster than inflation and job openings are still numerous. The only concern is that the participation rate of workers to population is still significantly lower than before the financial crisis.
Yellen concluded that things were still not perfect but that the US market at least was showing signs of stability. She did not rule out a rate hike and odds are that we will still have one more by year end though it will likely be another small quarter of a point. The rest of the world is a concern and the Fed does respect what its impact can be on everyone else. One last solid message to Congress was that they could go a long way with improved fiscal policy that would take significant pressure off the Fed to help navigate this post-crash economy.