How should the Fed spin Jackson Hole?
The Federal Reserve Bank of Kansas City is holding its annual economic conference in Jackson Hole next week, hosting a gaggle of international central bankers, as well as the heads of the regional Fed banks. They’ve got their work cut out for them.
Last year’s meeting focused in large part on tamping down worries that the Fed’s tapering of quantitative easing was going to plunge the world into cold, wet darkness. But by the time the conference came around, the “taper tantrum” was more or less over.
This year, we already know that the Fed’s pulling the plug on QE in October. Despite doing it rather gradually, the markets aren’t happy. That’s in part because the economy is addicted to cheap money – or I suppose I should say the financial system is, since it no longer has any particular connection with what was once coyly called the “real economy.”
No, it’s been kind of a lousy few weeks in the markets. Stocks are fine, of course, since the Fed’s ongoing theft of money from savers and transfer of it to borrowers has ruined the prospects for investing productively, so everyone is chasing the dips in the shares world.
But elsewhere, things are going to pieces. Bond market liquidity is at an all time low. Portugal’s banking system is going down the tubes. Spain is threatening to pass a Franco-esque law against public debate. The Eurozone economy has hit the skids. Ebola has jumped three borders now and smart people are talking about it being the next Black Swan. The US has pushed Russia to the brink of war in Ukraine. The Middle East is… well, you get the idea.
So how are the jolly heads of the Fed banks going to put a good face on the economy at Jackson Hole? I certainly hope they don’t still trot out the “recovery” trope again – it has been six years since the start of the “Great Recession” – and that’s pretty much the outer length of a business cycle. So if they want us to think we’re still in the “recovery” part of the cycle when normally we’d be in the “contraction” part of it, they’re drinking too much Kool Aide.
One thing they should consider is keeping Janet Yelling, the Fed Chairwoman, off the stage. She has been a catastrophe – telling multi-trillion-dollar asset managers like Blackrock and PIMCO that they’re not “systemically important,” being forced by Senator Elizabeth Warren to release the extent of the SIFI living will failures, botching up the best chance in three decades to properly regulate money funds and so on.
Given the importance of the main topic on the agenda – how to evaluate labor market behavior in order to know when to raise rates – and how this could have a massive impact on global capital flows, it’s crucial not to have any more PR – or policy – gaffes.