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Jackson Hole Economic Policy Symposium takes center stage | Deduced Reckoning

Joan Lappin
Joan Lappin

The Kansas City Fed will host its 45th annual conference starting today at the  Jackson Lake Lodge in Wyoming’s Grand Teton National Park. The three-day meeting brings together economists, academics, U.S. Government officials, and news and financial media to discuss the economy in a gorgeous setting.

The topic of the first symposium held in 1978 in Kansas City, the home of the 10th Federal Reserve District, was “World Agricultural Trade: The Potential for Growth.” The event was relocated to Jackson Hole in 1982 when Paul Volcker was invited to attend. His appearance set the precedent for his successors to attend. Of course, it was Volcker who was tasked with solving an inflation situation, twice as bad as the current one. That symposium was “Monetary Policy Issues in the 1980s.” Perhaps attendees this year should reread those speeches for advice.

One especially timely conference was held in 2007: “Housing, Housing Finance and Monetary Policy.” The irony of that one was that the collapse of the housing market was already underway. Bad mortgage loans were based on falsified appraisal values and given with little or no income verification of the borrower. It led to many major banks and Wall Street firms collapsing under the weight of those loans.

This year’s topic is “Reassessing Constraints on the Economy and Policy.” It also sounds boring but a key debate right now in economic circles concerns the degree to which the Fed has mismanaged the economy since the arrival of COVID. The Fed is often criticized for being behind in its policy decisions. By keeping interest rates too low for too long, many on Wall Street believe the Fed was very late to raise rates when they should have a year ago.

Don’t ignore the degree to which the Fed was pumping funds into the economy after President Donald Trump’s decision to close the economy. Congress was simultaneously pumping trillions into direct payments to citizens, loans to businesses that stayed open that were eventually forgiven and so forth. All that money had to go somewhere. It inflated home prices and stock prices.

In his speech at Jackson Hole in 2021, Fed Chairman Jerome Powell gave several excuses justifying his belief that dislocations in our economy were beginning to cause a bump in inflation but that it would be transitory. At that time, it was running +4%. Now it is running +8%. Clearly, “transitory” was the wrong word. The Fed’s challenge, Powell argued, was that for almost 25 years, inflation had been running below the desired 2% goal. No wonder he thought it would cure itself in short order. It did not.

Powell enumerated employment statistics highlighting that as the pandemic struck, restaurant meals fell 45%, air travel 95%, dentist visits 65%. Instead of spending on services, we bought “appliances, furniture, and cars” or we moved to a new city and bought a new home. When the lack of semiconductor chips for new cars became extreme, used car prices went wild.

One thing we now know is that supply chain disruptions and bottlenecks became widespread. Containers were stacked up in California ports. Suddenly, as we return to the office, we aren’t living in leisure clothes or spending our days on Zoom calls. Walmart and Target (which we own) have recently had to write off inventory that customers no longer want to clear space for a happier Christmas selling season. If you listen in on Friday to Powell’s talk, pay attention to whether or not the Fed is going to keep raising interest rates and by how much or if they are going to turn their attention now to shrinking its excessive multi-trillion dollar balance sheet.

Joan Lappin CFA has been called an “investment guru” by Business Week and a “top manager” by the Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment adviser, in 1986. Email JLappincfa@gmail.com. Follow her on twitter: @joanlappin. Her past columns appear at heraldtribune.com/business/columns.

This article originally appeared on Sarasota Herald-Tribune: LAPPIN: Jackson Hole Symposium focuses on economic restraints, policy