Eye on Wyoming: Investors Gear Up for the Jackson Hole Symposium Amid Structural Shifts in the Global Economy
August 25, 2023
Currently, investors have turned their attention towards Wyoming, not for leisure, but for the annual Jackson Hole Symposium that is hosted by the Kansas City Fed. This year’s main speaker is expected to be Chairman Jerome Powell. The 2023 symposium is themed “Structural Shifts in the Global Economy”, and is expected to tackle crucial issues concerning the U.S.’s economic direction: will it revert to its pre-pandemic low-interest rate environment or maintain a higher-for-longer approach?
Revisiting Jackson Hole: Nostalgia and Market Nervousness
Market apprehension leading up to the summit seems to be overshadowing any previous market enthusiasm generated by Nvidia’s (NVDA) exceptional results. Many traders vividly recall the aftermath of the previous year’s Jackson Hole meeting when all three major averages fell by 3%-4% after Powell squashed hopes for a “pivot” on the Fed’s aggressive policy tightening. He declared that “restoring price stability will take some time and is likely to require a sustained period of below-trend growth and softer labor market conditions,” leading to concern among both households and businesses.
Economic Expansion: A Silver Lining
Interestingly, the economy has shown significant growth since Powell’s speech, while the unemployment rate has remained at an all-time low. A month after Powell’s 2022 speech, the S&P 500 (SP500) hit its lowest point, but despite recent slow progress, the index has largely been on an upward trend – growing by a total of 22%. The previously common “Recession” warnings have been substituted with “soft landing” predictions, although unease remains due to new high Treasury yields and regional banks pointing out potential risks.
Recap: Powell’s Policy Stance and Implications
Looking back at Jackson Hole 2020, Powell introduced a “Flexible Average Inflation Targeting” policy, indicating that the central bank would tolerate higher inflation to accelerate a speedy labor market recovery post-pandemic. In 2021, as inflationary pressures surged uncontrollably, Powell reiterated his “transitory” stance, which eventually led to a sharp policy reversal resulting in a harsh tightening cycle. As a result, a technical recession occurred in the first half of 2022, but the U.S. economy rebounded, with the GDP growing almost a full percentage point more than anticipated, and the Atlanta Fed’s GDPNow model forecasting a substantial 5.9% growth for Q3. The pressing question now is whether we can expect further “structural shifts” in economic policies.