Yellen's Jackson Hole Speech May Move Markets


The first eight months of the year have been dominated by one question: When will the Fed raise rates next? The answer may come from a surprising place: Jackson Hole, WY. Since 1982, the Federal Reserve Bank of Kansas City has hosted a late summer economic policy symposium in Jackson Hole. The event brings together central bankers, private market participants, academics, policymakers and others to discuss the issues and challenges in a public but informal setting. While this may sound like a bunch of boring people in a beautiful location, in recent years, some central bankers have made big news from Jackson. In 2010, Fed Chair Ben Bernanke discussed the pros and cons of several policy options, including buying “longer-term securities,” which was the premise of the second round of quantitative easing or QE2. Two years later, Bernanke used his Jackson Hole remarks to introduce the possibility of a third round of asset purchases known as QE3, when he said: “The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

Four years later, the central bank is no longer buying assets to prompt economic growth, but so far, it has only increased its benchmark interest rate one time-last December. While some Fed officials have recently been leaning towards an interest rate increase sooner rather than later, others are concerned that the economy remains too fragile to risk higher rates. Further evidence of the division between the two camps was evident in minutes from the last policy meeting.

That’s why at this year’s Jackson Hole confab, traders and economists will listen closely to current Fed Chair Janet Yellen’s speech, “The Federal Reserve’s Monetary Policy Toolkit” to see if there is either an implicit or explicit clue about when the next rate hike will occur. While she is not likely to say, “September is baked in the cake,” she may discuss the factors that would lead to an increase in September, like another strong employment report along with firming inflation. Right now, the market is predicting just a 20 percent chance of a September move and 50 percent likelihood at the December meeting. A September surprise could knock stocks down from their peaks and usher in what could be a bumpy autumn.

MARKETS: Summertime and the living is easy….in what was a typical August week, stocks bounced around all-time highs, but closed mostly unchanged amid light volume.

  • DJIA: 18,552, down 0.1% on week, up 6.5% YTD
  • S&P 500: 2183, down 0.01% on week, up 6.8% YTD
  • NASDAQ: 5238, up 0.1% on week, up 4.6% YTD
  • Russell 2000: 1236, up 0.5% on week, up 8.9% YTD
  • 10-Year Treasury yield: 1.58%
  • British Pound/USD: $1.3078
  • September Crude: $48.52, up more than 20% since falling below $40 in early Aug
  • August Gold:  at $1,340.40
  • AAA Nat'l avg. for gallon of reg. gas: $2.16 (from $2.13 wk ago, $2.63 a year ago)


Mon 8/22:

8:30 Chicago Fed National Activity Index

Tues 8/23:

10:00 New Home Sales

10:00 Richmond Fed Manufacturing Index

Weds 8/24:

9:00 AM FHFA House Price Index

9:45 PMI Manufacturing Index Flash

10:00 Existing Home Sales

Thursday 8/25:

First day of Kansas City Fed Econ Symposium in Jackson Hole, WY

8:30 Durable Goods Orders

11:00 Kansas City Fed Manufacturing Index

Friday 8/26:

8:30 GDP

8:30 International Trade in Goods

8:30 Corporate Profits

10:00 Janet Yellen’s speech from Jackson Hole

10:00 Consumer Sentiment