News : All eyes on Jackson Hole

Monday, August 22, 2022

All eyes on Jackson Hole

Aug 22, 2022

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Federal Reserve officials head to Jackson Hole this week for the Kansas City Fed's annual three-day symposium, along with some of the world's pre-eminent economists and central bankers.

The conference could be the most important economic policy event of the year, as investors look to Fed Chair Jay Powell to lay out his expectations — or hopes/dreams? — for the next several months and into 2023.

It feels like we've said it over and over, but it's a particularly challenging and precarious moment for the central bank.

Powell & Co. have undertaken an aggressive rate hiking campaign, lifting interest rates an astounding 225 basis points since March to wrangle untamed inflation. (It's Jackson Hole week; we're leaning into the cowboy metaphors.) That effort has included a three-quarter-percentage-point increase in June — the first since 1994 — followed by a second one in July.

Now, Fed officials must manage the delicate task of knowing when to back off those super-sized rate increases without sending an inadvertent signal that the inflation fight is wrapping up. And they must determine how much further to raise rates after that to keep reining in prices without tipping the economy into a recession.

John Williams and Jerome Powell walk together.

New York Fed President John Williams, left, and Fed Chair Jay Powell walk together outside the Jackson Hole Economic Policy Symposium in 2018. | Jonathan Crosby/AP Photo

A chorus of officials has emphasized in recent days that they still have a long way to go, and they continued to warn about the risks that inflation could become entrenched in the U.S. if it isn't stamped out quickly. On the other hand, several have warned of the risks of going too far, and acknowledged that the full effect of interest rate increases is still making its way through the economy.

Powell will be the one to weave those views together this week in a highly anticipated speech Friday morning at 10 a.m. ET.

What to expect from Powell? After markets took a dovish view of Powell's press conference remarks on July 27, we expect he won't mince words at Jackson Hole.

To that end, he'll likely reiterate that Fed officials' economic projections released in June — which showed the federal funds rate reaching a level higher than markets currently expect — is still a decent guide for policy, Deutsche Bank economists said in a note previewing the conference.

He'll also likely underscore what minutes from the Fed's latest meeting showed: that officials expect rates to remain "uncomfortably high" for some time after they stop raising them.

What not to expect? Much guidance about what the Fed will do at its next meeting in September. Officials have signaled they're open to either a half-percentage-point increase or another three-quarter-percentage-point move.

But the word of the day is data. Powell and his colleagues will be closely watching the latest inflation data released on Friday (the personal consumption expenditures index, their preferred gauge), plus another jobs report and a report on consumer price inflation ahead of their Sept. 20-21 meeting. That is, they still have plenty of information to process before making a final decision.

IT'S MONDAY — A special shout-out to our friend and New York Times Fed reporter Jeanna Smialek, who married economist Peter Newland in Surrey, England, on Saturday. We're told there will be a honeymoon, but not until after Jackson Hole, natch. (Pic)

Have a tip, story idea, or feedback for your MM team? Send it our way: kdavidson@politico.com, ssutton@politico.com or aweaver@politico.com.

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.

DRIVING THE WEEK

U.S. manufacturing and services PMIs and new home sales data released Tuesday … Durable goods and pending home sales data released Wednesday … Third-quarter GDP revision released Thursday … Urban Institute and Tax Policy Center virtual discussion on fiscal policy for today's economy Thursday … PCE inflation report and University of MIchigan consumer sentiment data released Friday … Fed Chair Powell speaks at Jackson Hole conference Friday.

FIRST IN MM — The Small Business Administration and Small Business Majority will host an in-person signing event today to announce a new co-sponsorship and webinar series aimed at helping entrepreneurs navigate short-term economic challenges, such as inflation, supply chain disruptions and workforce shortages. "The Bottom Line" webinar series, which starts next month, will feature SBA officials, small business advocates and economic experts. A formal rollout is expected tomorrow.

DIGITAL DOLLAR — Momentum is growing behind a digital dollar, Sam writes. The House Financial Services Committee is poised to introduce a bipartisan bill in the coming weeks that will direct the Federal Reserve to research and develop a central bank digital currency (CBDC), a move Chair Maxine Waters (D-Calif.) said assures the U.S. will "remain competitive globally."

Attorney General Merrick Garland has until Sept. 5 to determine what, if any, legislation is necessary for the Fed to move forward; marking one of the most substantive policy decisions to come from President Joe Biden's executive order on crypto. But while a CBDC could make transactions faster, cheaper and more secure, it's capacity to disrupt traditional banking services and nascent crypto payment systems is triggering alarms across powerful constituencies.

"There is a 'don't take my cheese' opposition coming largely from the banks who view the CBDC as a potential disrupter of their very profitable payment systems," Rep. Jim Himes (D-Conn.), who released a Fed digital dollar proposal earlier this year, told Sam earlier this month. "It's not a coincidence that pretty much every single bank and every single bank association has been in my office."

Private stablecoin issuers have the same "parochial objection that the banks do," Himes added. "They see CBDCs — and I think rightly so — as a potential threat."

But, but, but — While CBDC policies face headwinds from both commercial banks and some of the biggest players in crypto, certain fintechs are more bullish: "The U.S. government should actively explore and consider new digital forms of money that can most effectively operate in an increasingly digital world," the payments company PayPal wrote in a comment letter to Treasury last month, adding that "a digital dollar could be a logical next iteration to futureproof the U.S. dollar. "

COMING LABOR POLICY CRACKDOWN? — Our Eleanor Mueller: "Republicans are heavily favored to win back the House in the midterm election — and if they do, cracking down on anything they see as tilting the scales toward organized labor will be one of their first orders of business. Already, GOP members are laying the groundwork for intense scrutiny of the Labor Department, the National Labor Relations Board and the administration itself."

ESG DISCLOSURE PUSHBACK — Our Declan Harty: "Some of Wall Street's most sustainability-conscious investors are sounding the alarm on a plan to require new ESG disclosures by the fund industry, saying it would have unintended, and potentially counterproductive, results. …

"The groups — many of which have defended the SEC's push to get companies to disclose more information about ESG issues — have described the plan as being too rigid, questioned whether it could lead to fewer investment advisers weighing ESG factors in their strategies and argued that it would, in fact, worsen greenwashing."

THE CASEY JONES BOTTLENECK — WSJ's Ted Mann: "The Surface Transportation Board, the economic regulator overseeing the country's freight railroads, is considering aggressive new rule-making to force railroads to share tracks and improve competition for their customers. It is adjudicating a dispute over track access on the Gulf Coast, with implications for the growth of passenger rail nationwide."

Economy

MORE JACKSON HOLE FODDER — Powell has a chance to reset market expectations with his Jackson Hole speech, Bloomberg's Matthew Boesler and Jana Randow write. Also, from the FT's Kate Duguid and Colby Smith: Some investors are warning of a disconnect between market expectations and the Fed's stated commitment to stamp out inflation.

HELP WANTED — FT's James Politi: "US education secretary Miguel Cardona has called for teachers to be paid more as American schools grapple with widespread shortages at the start of the academic year."

NEWSLETTER WRITERS QUAKE — WSJ's Yusuf Khan and Jeffrey Lewis: "A poor harvest in the world's largest coffee producer threatens to push the cost of a cup of joe even higher. Farmers in Brazil are dealing with the fallout from freakish weather last year, where plantations endured first drought and then frost. Some say that their crop of higher-end arabica coffee beans will be less than half what it could be in a good year."

DON'T MISS - MILKEN INSTITUTE ASIA SUMMIT : Go inside the 9th annual Milken Institute Asia Summit, taking place from September 28-30, with a special edition of POLITICO's Global Insider newsletter, featuring exclusive coverage and insights from this important gathering. Stay up to speed with daily updates from the summit, which brings together more than 1,200 of the world's most influential leaders from business, government, finance, technology, and academia. Don't miss out, subscribe today.

Crypto

YOU CAN'T SIT WITH US — The FDIC would like the crypto industry to stop name dropping. On Friday, the banking regulator sent cease-and-desist letters to five crypto companies (or crypto-adjacent businesses) for making "false representations—including on their websites and social media accounts—stating or suggesting that certain crypto-related products are FDIC-insured or that stocks held in brokerage accounts are FDIC-insured." The biggest name of the five, by far, was FTX US – the domestic arm of a crypto exchange led by political megadonor Sam Bankman-Fried.

Fly Around

Germany may not be able to replace all its imports of Russian natural gas this winter and might have to resort to nuclear power to plug part of the gap, the nation's two most powerful leaders said. — Bloomberg's Vanessa Dezem and Birgit Jennen

For all the talk in Western capitals of reducing reliance on Chinese factories, China has in the past two years consolidated its position as the world's dominant supplier of manufactured goods. — WSJ's Jason Douglas and Stella Yifan Xie

Walmart is expanding its employee health-care plans to cover more situations in which its staff might seek an abortion, making the nation's largest private employer the latest firm to offer enhanced access to reproductive health services after Roe v. Wade was overturned. — WaPo's Andrew Jeong

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