James McCann, Deputy Chief Economist, abrdn, comments on Jackson Hole. Jame’s comment can be seen below:
“Those hoping for strong signals on the direction for short term policy from Federal Reserve Chair Powell at this year’s Jackson Hole may well be disappointed. Powell was clear at the July FOMC meeting that policy decisions would be data dependent from this point, as the central bank watches how its tightening up-to-now is feeding through to domestic growth and inflation. With several important data releases still pending before the September meeting, it would be odd for the Fed Chair to strongly signpost which way it was leaning ahead of this get together. Instead, expect the Chair to emphasize that all upcoming meetings are live and the FOMC is prepared to tighten further if required.
“The theme of the meetings is “Structural Shifts in the Global Economy”, which might open the door for discussion over the extent to which neutral interest rates might have shifted higher after the pandemic. Powell has been consistently sceptical on using uncertain estimates of neutral interest rates to calibrate policy. Indeed, he could use this as an opportunity to reiterate the benefit of letting the data flow tell the Fed how restrictive policy is becoming.
“Finally, there has been some speculation that the Fed could allow inflation to drift more slowly to target to help ensure a soft landing, or even change its inflation target to accommodate higher inflation. Powell has been adamant that this would be a bad time to raise inflation targets, as it could undermine confidence in the central bank’s willingness to meet any future target and warned of the large costs of allowing above target inflation to become entrenched. Therefore, we wouldn’t expect any fireworks on this front.”
