The world’s most powerful central bankers are gathering in the US to exchange views over the myriad of problems and uncertainties they confront. But they will do their utmost not to send any clear signal to the markets.
Tucked between the snow-capped Rocky Mountains in the US state of Wyoming, the sleepy small town of Jackson at first glance appears to be an unusual place to draw attention from financial market participants worldwide. But the regular gatherings here of the world's most powerful central bankers put the place in the global spotlight.
The renowned Jackson Lodge hotel in the town where the meetings take place is located at an altitude of almost 2,000 meters (6,560 feet). The hotel offers only poor comforts; there are no facilities like a spa, gym or hairdresser. In terms of compensation, though, the lodge offers a fantastic view of the Jackson Lake and the Teton Range, a mountain chain of the Rocky Mountains.
The gathering offers time and opportunity for the bank chiefs to reflect on monetary policies and their effects on both sides of the Atlantic. "Fostering a Dynamic Global Economy,” is the motto of this year's conference. The event was first organized by the Federal Reserve Bank of Kansas in 1978. Since then, it has morphed into one of the world's most important monetary policy gatherings.
The European Central Bank (ECB) has also been striving to elevate the stature of the annual gathering it organizes in the Portuguese town of Sintra to the same level as that of the one in Jackson. The ECB's efforts have only reaped moderate success so far. It can be evidenced by the fact that US Federal Reserve Chairwoman Janet Yellen opting to attend a meeting in London over the one in Sintra this June.
The Jackson Lodge hotel offers a fantastic view of the Jackson Lake and the Teton Range, a mountain chain of the Rocky Mountains
All eyes on Yellen and Draghi
Both Yellen and ECB President Mario Draghi are delivering speeches this year at Jackson Hole.
Only a few weeks ago it had appeared as if Draghi would signal at the gathering a potential shift in the ECB's monetary policy.
But now it is being said that the eurozone central banker will talk about long-term challenges rather than focusing on the current monetary policy stance.
That's why Folker Hellmeyer, an economist at Germany's Bremer Landesbank, reckons Draghi will try not to send any signals of an ECB policy shift from Jackson Hole.
"We know from the ECB that Mario Draghi does not want to explicitly comment on the interest rate and monetary policies of the ECB," underlines Hellmeyer.
Statements made by Fed governors in recent weeks have pointed at different directions with regard to US interest rates, Hellmeyer notes, adding that the Jackson Hole gathering is unlikely to give clarity on this front.
According to Börsenzeitung, a German financial daily, there is another compelling reason for Draghi to refrain from making any big statements: the German elections. Germany is going to hold parliamentary elections next month, and Draghi and his ECB colleagues will certainly want to avoid putting themselves in a situation where they are blamed for attempting to influence the polls, the paper pointed out.
So, in Jackson Hole, central bankers are likely to focus not on short-term or mid-term monetary policies, but on the long-term challenges that affect the self-conception of the central banks and their policy strategies.
The economists see a years-long, mostly moderate economic growth with surprisingly low inflation. Productivity growth has been declining since the 1950s; the digital revolution over the past two decades has not yet contributed significantly to productivity growth.
In addition, governments and companies have accumulated vast debts - at low interest rates. It's also unclear whether the demographic change in many industrialized countries will bring dividends or create additional costs. All these issues and uncertainties are constantly running in central bankers' minds.
Against this backdrop, is it a wise policy for the central banks to focus on just the labor market and inflation? An increasing number of economists no longer place much confidence in these measures. Many are of the view that the 2-percent inflation target of the Fed and the ECB as arbitrary.
The labor market data, for its part, keeps constantly pointing to a different direction. One month, data shows the market is in a good shape and then the next month it turns worse; this keeps repeating again and again, points out US economist Allan Meltzer.
Fed policymakers' views on monetary policy keep changing with changes in US labor market data.
The head of the Federal Reserve Bank of Dallas, Robert Kaplan, for instance, wants the bank to be patient regarding monetary policy tightening. Before supporting further interest rate hikes, he believes, it's necessary to see indications that inflation is on an upward trajectory in the "medium-term." Inflation in the US currently stands at around 1.5 percent.
The Fed last raised its benchmark interest rate in June to the current level between 1.0 and 1.25 percent, and signaled a further increase later this year.
Despite the low price pressures, the head of the Cleveland Fed, Loretta Mester, wants to hold on to the targeted raises in rates for the time being.
The bottom line is that in Jackson Hole this year much discussion will be over the basics and long-term developments. Whoever wants indications about the current monetary policies on both sides of the Atlantic will likely be disappointed, and will have to wait patiently at least until autumn.