Jackson Hole in Focus This Week

Alan Penny

20 August 2019

3 min read

The Jackson Hole symposium is this week, and extensive outing by central bankers and Jackson Hole, Wyoming. There are always headlines made at these meetings, as the world’s largest central banks are all represented. In this backdrop, we will be paying quite a bit of attention to what Jerome Powell says, the Federal Reserve Chairman.

Hints coming

 There should be plenty of hints out there from central bankers around the world. While some central banks such as the European Central Bank are already known to be loose with their monetary policy. A lot of traders will be paying attention to Jerome Powell as the Federal Reserve is still a bit of a question. While we have had an interest rate cut as “an insurance policy” type of cut, the question is whether or not they will continue to cut interest rates at the Federal Reserve. Look for Jerome Powell to make that question a little bit more clear later this week during the Friday speech that he is scheduled to give based upon the challenges for monetary policy.

Dovish attitude most likely

If there’s been one thing that has been consistent since the great recession, the Federal Reserve has become the instrument of Wall Street, doing what the market bids. Federal Reserve independence has been lacking for the last decade, and with markets pricing in several rate cuts, it’s very likely that Jerome Powell will continue to hit at further monetary stimulus, if not flat-out rate cuts. After all, he had suggested that perhaps there weren’t cuts coming last year, and we saw what happened in the stock markets as a reaction. That being said, it appears that the Federal Reserve has learned that the tail now wags the dog.

Race to the bottom

At this point, it’s a bit of a “race to the bottom” by central bankers around the world. Being the reserve currency, the US dollar is a bit different in the sense that commodities are priced in those same greenbacks. Central banks around the world have been begging for rate cuts coming out of the United States to weaken the US dollar, because quite frankly it can cause a swath of destruction around the world when commodities and everything else become far too expensive for most consumers. With that in mind, the Federal Reserve looks like it is ready to join the fray, perhaps acquiescing to some of its contemporaries.

All things being equal, what this means is that fiat currencies are in a race to the bottom, and therefore hard assets will eventually get a bit of a bid. This is what we are seeing in the Gold markets, and in the crypto markets. At this point, it’s very likely that we are going to see a lot of noise, but quite frankly a lot of the trades that have been working over the last couple of weeks should continue. We may see a bit of a move in the stock market to the upside initially, but eventually traders will start to ask questions about all of this necessary stimulus.

Written By
Alan Penny

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