From Yellen with Love

On August 21st financial leaders from around the world gathered in scenic Jackson Hole, Wyoming.  This conference, which is actually the Kansas City Fed’s annual economic symposium, has been held since 1978.  There are 12 federal banking districts, Kansas City being one of them.  Each district hosts a yearly event on different topics, and yes, before you ask, Jackson Hole is in the Kansas City district.  Originally, this conference centered on agriculture, allowing central bankers, financial folks and academics alike to meet in a low-key setting to discuss food, famine and financing.  Who doesn’t like a good corn or soybean story; you know what we’re talkin’ ‘bout! 

Since its “low key” beginnings, the Jackson Hole conference attracts the A-list of global economic policy superstars to this now invitation-only event.  Of course the location doesn’t hurt either.  So, for a week in August financial eyes turn to the western United States to glean some insight into the emerging economic concerns that are likely to drive economic policy over the next year or more.  This year’s topic was “labor market dynamics and monetary policy”.  Farmer or not, that’s a mouth full for anybody.

Keynote speaker Fed Chair Janet Yellen reminded us of the Fed’s dual mandate of promoting both price stability and maximum employment.  She explained the Fed’s position in looking at cyclical (temporary) versus structural (long-term) changes in wages and employment and just how complicated interpreting the data could be.  Chair Yellen continued to reinforce the Fed’s view that there were no interest rate changes expected in the foreseeable future, although she did state that recent economic improvements were coming quicker than anticipated.  Unlike her predecessors, Bernanke and Greenspan, Yellen did not deliver any new news.  She did, however, deliver her speech in a straightforward manor allowing for insight into the Fed’s thought processes without the need for a “Fed-speak” translator.  Why, she almost sounded like a straight-shooter herself.  Her conclusion?  The interactions of the labor market and inflation are downright complex, so that it’s darn near impossible to know exactly what they are going to do down the road.  We currently expect the Fed to keep interest rates on hold until late 1st quarter to early 2nd quarter, assuming no unforeseen hit to employment or GDP.  Here is the link to her complete speech – for you economic types, it might be worth reading:

The other featured economic heavyweight was European Central Bank President Mario Draghi.  Draghi took a different tone in his speech.  Whereas the US economy is seen as recovering, Europe is continuing to fall under pressure.  Draghi appeared to use Jackson Hole as an opportunity to prepare the markets for Europe’s version of Quantitative Easing.  With inflation below the ECB’s target, Draghi said that he and the ECB stood ready to take additional policy action, extolling the benefits of US-style quantitative easing. One article from stated that Draghi felt the risk of doing too little (no stimulus) outweighed the potential inflation risk of doing too much.  Just before our Notes went to print, Draghi followed through with announcements of monetary easing that exceeded market expectations.

Economic data released during August reflected continued economic improvement across most indicators, with a few exceptions which we’ll be following for the next month.  For most of our clients we reduced our exposure to one of our hedged managers, and after a long time of avoiding emerging markets, we have begun adding a small exposure to emerging equities.  We continue to remain conservatively optimistic and see any pull backs as buying opportunities.

As always please feel free to contact us with questions, any topics you would like us to discuss, or even any good agricultural stories you have.  What’s Jackson Hole got that we don’t have in the South anyway?