Jackson Hole: Focus on US rate hike – Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, suggests that in the upcoming central bank get-together at Jackson Hole in Wyoming, which is held from 25-27 August this year, the focus will be on whether the US can manage to squeeze out one more rate hike this year or not.

Key Quotes

“Fed Vice-Chair Fischer certainly seemed to signal this was the case with his recent comments. Given the Fed Funds futures implied probability is still only 51% for a hike by December this year, that should arguably give a lift to the battered USD if so, and that does seem a likely outcome this week.

However, on a broader front we need to listen to comments from the BoJ regarding what more it can do when it meets on 21 September: are they done, or is there some further, even more distorting and intrusive step that they can take in the monetary policy field? That argues for a weaker JPY, and also seems quite possible.

On the broadest front, will there be any official recognition from Jackson Hole that we are likely to never return to the pre-GFC “normal”? And, as a result, that the “consensus” preference for monetary over fiscal policy must now end, as must the strict emphasis on price stability, and, by implication, so will the pre-GFC conception of central-bank independence? (i.e., open policy co-ordination between the two, rather than fiscal loosening and monetary tightening.) True, recent papers/comments from the IMF, the Fed, and the RBA, among others, suggest this view is sinking in. However, it probably won’t get any official recognition at Jackson Hole this year. After all, if it did, suffering tax-payers might not be happy to foot the bill for next year’s very expensive offsite for a bunch of massively-overpaid civil servants who have failed in virtually every key objective they have been set.”