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What to expect from Jay Powell

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This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Friday, August 27, 2021

The central bank event of the year in 'Jackson Hole'

For the second straight year, the annual Jackson Hole Economic Symposium hosted by the Kansas City Fed will be held virtually and away from the scenic backdrop of Grand Teton National Park. 

But as has become tradition, on the morning of the symposium's first day we will hear from the current chair of the Federal Reserve. At 10:00 a.m. ET today, Jerome Powell will give a speech on the broad topic of "The Economic Outlook." 

Dedicated Fed watchers and market participants, as readers may well be familiar, are set to closely parse Powell's comments for hints about when the Fed might begin tapering its pace of asset purchases. 

In a note to clients ahead of this event, Kathy Bostjancic at Oxford Economics said Powell will likely "provide further guidance on a gradual policy pivot towards less extreme monetary accommodation." And in Oxford's view, an announcement that the Fed will begin tapering its pace of asset purchases late this year or early next could come as soon as September. 

Investors' focus on Fed policy is, in the end, driven by one simple idea. All else equal, if Fed policy is more accommodative — i.e. rates are lower or the Fed is buying assets — then conditions are primed for riskier assets to do better. When conditions are tighter, safer assets will perform better. These are both, of course, intentionally general descriptions. 

And while investors and strategists might be looking to Powell's speech today for a particular kernel of forward guidance, the Fed chair's approach during his previous three speeches as Fed chair at the Jackson Hole meeting suggests something bigger picture is likely. Particularly if we view Powell's own history at this event as anything like a guide. 

In 2018, Powell's first Jackson Hole speech as Fed chair, Powell talked about shifting targets of full employment and neutral interest rates. The speech reflected Powell's exact position at the central bank — a lawyer by training now leading the world's most influential central bank trying to figure out what all these Ph.D economists are talking about when they say "u star." The way Powell has handled shifts in markets and the economy during his tenure suggests his answer to questions on what he thinks about "r star" and "u star" and "pi star" is not much. 

A year later, Powell gave an expansive overview of an economic expansion then in its 11th year and what we viewed as the third distinct era of economic development since World War II. An era that unbeknownst to Powell or that symposium's attendees was soon to be shaken to its core by a global pandemic just six months later. 

In 2020, Powell unveiled the Fed's new average inflation targeting program. "In seeking to achieve inflation that averages 2% over time, we are not tying ourselves to a particular mathematical formula that defines the average," Powell said. "Thus, our approach could be viewed as a flexible form of average inflation targeting." 

And while the economy is now more than a year past the end of the pandemic-induced recession and stocks are at record highs, Powell faces a delicate moment as Fed chair. The economy remains strong but some momentum has been lost amid a resurgent virus in the U.S. and around the globe. Powell's term as Fed chair is also set to expire in February, which means this may be his final Jackson Hole presentation as Fed chair. 

"The Economic Outlook" might seem, to some, the headline of a speech from the sitting Fed chair about what the next year has in store. Like a Wall Street economist, Powell could be compelled to offer the central banker version of a downgraded GDP forecast. 

But Powell's use of this platform through the years suggests we're in for something bigger picture. An effort, maybe, to answer questions raised in his first three speeches at this event as the economy embarks on a new chapter of its development as Powell perhaps gets set to begin a new journey of his own. 

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

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