The great and the good of the central banking world gather Thursday for the annual Federal Reserve Symposium at Jackson Hole, Wyoming. The snappily-titled theme is "Reassessing Constraints on the Economy and Policy.” There needs to be an honest reflection on the causes of the rampant inflation most of the world finds itself battling. The track record of central bank economic forecasting is in tatters, as is confidence that our monetary overlords know what they are doing. Missteps this week risk triggering market dislocations.
It doesn't help that the concept of forward guidance on interest-rate policy is being discarded in favor of meeting-by-meeting data dependency. Something needs to fill this vacuum, so Fed Chair Jerome Powell's keynote address on Friday needs to clarify how much risk the US central bank is prepared to take with the economy to slay the inflation beast. It’s simplistic to say there’s a trade-off between growth and rising consumer prices, but any response to the current situation that doesn't at least attempt to square that circle won't hold.