Jackson Hole Guide: Investors Seek Yellen Job-Market View

Fed Chair Janet Yellen
Federal Reserve Chair Janet Yellen will be among the speakers at the annual Jackson Hole symposium on monetary policy. Photographer: Andrew Harrer/Bloomberg

Here’s what to look for from the Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole, Wyoming, which runs Aug. 21-23.

-- Yellen’s keynote: The highlight will be Fed Chair Janet Yellen’s speech Aug. 22 on labor markets at 10 a.m. New York time. She’ll probably reiterate the Fed’s view that there is plenty of room for improvement in the labor market, according to Dean Maki, chief U.S. economist at Barclays Plc in New York.

-- In July, the Federal Open Market Committee changed the language of its policy statement to highlight “significant underutilization of labor resources” as a justification for continued easy-money policies, even though the unemployment rate has fallen faster than Fed officials had forecast. The Fed chief will probably “point to measures like the elevated number of workers that are employed part time for economic reasons as evidence” of continued slack, Maki said.

-- Yellen “would like to move away from this being a market-moving policy speech and get it back to being more of an academic exercise,” said Michelle Girard, chief U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “I don’t think that she will use this as a tool to signal anything in terms of the Fed’s thinking, or certainly any meaningful change in the Fed’s thinking.”

-- Wage focus: Tepid growth in wages is one area Yellen could choose to explore in more detail if she wants to advance the conversation, said Ethan Harris, co-head of global economics research at Bank of America Corp. in New York.

Stagnant Wages

-- Average hourly earnings rose 2 percent in July from the year before, matching the mean increase over the past five years and down from 3.1 percent in the year ended December 2007, Labor Department data showed in the latest employment report. Separately, the employment cost index, a measure of labor cost changes, advanced 2 percent in June from the previous year.

-- “A more careful look at wages would be a good place for her to plow some new ground,” Harris said. “They are way too weak, no sign of improvement, and if you’re going to defend why the Fed is going so slowly here, that’s your exhibit A: slow wage growth.”

-- Conference participants will be mostly academics and central bankers; economists from major Wall Street banks weren’t invited this year.

-- Draghi’s outlook: European Central Bank President Mario Draghi will follow Yellen with the keynote luncheon address. Investors will be seeking further insights into how weak his 18-nation economy is and whether he’s more likely to deploy Fed-style quantitative easing that the ECB has resisted.

Europe Stalls

-- The euro area unexpectedly stalled in the second quarter as its three biggest economies failed to grow, adding to the region’s deflation risks. Draghi already committed this month to intensifying the unprecedented stimulus he unveiled in June if the outlook deteriorates.

-- Draghi’s challenge may be compounded if Yellen remains focused on boosting the U.S. labor market, according to Alberto Gallo, head of macro credit research at Royal Bank of Scotland Group Plc in London. That’s because her bias toward continued stimulus will keep the dollar weak against the euro.

-- Draghi “has tried to push down the euro and has so far won little ground against the dollar,” Gallo said. “The ECB is under even more pressure to do more.”

-- Structural woes: Panel discussions on labor-market research presented at the conference may reveal “a growing awareness that underutilized labor resources may be a more permanent fixture,” rather than a cyclical shift, said Eric Green, global head of foreign exchange and rates at TD Securities USA LLC in New York.

‘Hawkish’ Tone

-- “The conference itself is going to create an aura of hawkishness,” Bank of America’s Harris said. “Because it’s an opportunity for critics of the Fed to speak out, the audience tends to have a hawkish bias at Jackson Hole, and we’ve seen that repeatedly in the past. It is the Kansas City Fed, after all, and they themselves are big critics of the Fed’s policy.”

-- Esther George, president of the Kansas City Fed, dissented on seven FOMC policy votes last year, carrying on the tradition of her predecessor Thomas Hoenig, whose eight straight dissents tied a record for the most in a single year.

-- Global divergence: Since the financial crisis of 2008, the Jackson Hole meetings have been marked by unanimity among central banks eager to discuss their efforts to stimulate their economies. The united front may soon splinter as Yellen’s Fed draws quantitative easing to an end, while the Bank of England under Governor Mark Carney is already discussing the timeframe to raise interest rates in the U.K.

-- By contrast, the ECB and Bank of Japan are considering added stimulus to counter weak inflation. The divergence is “likely to remain a key theme for many quarters,” said Kit Juckes, global strategist at Societe Generale SA.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE