Investing.com - The Federal Reserve Bank of Kansas City Economic Symposium at Jackson Hole, Wyoming, will kick off on Thursday and last through Saturday with markets focused on appearances from Fed chair Janet Yellen and European Central Bank president Mario Draghi.
Though expectations are low for either central bank chief to wow markets with any major revelation, investors will closely follow remarks in an attempt to glean insight into the future path of global monetary policy.
The 2017 symposium will focus on “Fostering a Dynamic Global Economy” in an annual event that gathers hundreds of central bankers, finance ministers, policymakers, academics and economists in order to exchange ideas the economic issues, implications, and policy options pertaining to the symposium topic.
The symposium won particular fame back in August 2010 when Fed chief Ben Bernanke made his famous promise to markets:
“Should further action prove necessary, (Fed) policy options are available to provide additional stimulus.
Any deployment of these options requires a careful comparison of benefit and cost.
However, the Committee will certainly use its tools as needed to maintain price stability - avoiding excessive inflation or further disinflation - and to promote the continuation of the economic recovery.”
Although the Fed actually waited another three months to embark on the second round of quantitative easing, known as “QE2”, which included the purchase of $600 billion in long-term Treasuries and an additional $250 billion to $350 billion reinvestment of earlier proceeds from mortgage-backed securities meant to stimulate the economic recovery, Jackson Hole was considered to be the preamble to a major shift in monetary policy and became the event to watch.
Yellen and Draghi may lack drama
Expectations for ground-breaking material out of this year’s symposium are low, even as central bankers shift to a less dovish stance in an attempt to return to policy normalization.
Current Fed chief Janet Yellen will speak on financial stability at 10:00AM ET (14:00GMT) Friday and Danske Bank does not expect anything “dramatic”.
“We look for a repeat of signals that the announcement on balance sheet reduction will come relatively soon (likely September) and that one more rate hike is still the base case this year,” these experts explained.
Anticipation for Draghi’s appearance on Friday has also waned as sources recently indicated that the ECB president would stick to the symposium topic and preferred to watch developments in the lead up to an earlier hint that clues could be given in the autumn.
“ECB President Draghi will likely stress the flexibility it has in planning its policy reversal, as in inflation has not yet risen enough to convince ECB policy makers that a tighter monetary policy is necessary,” economists at Julius Baer said.
“We expect at least the ECB to wait for inflation to restore itself further, pushing out policy normalization until the last possible moment,” they concluded, reiterating their prediction that that asset purchases will be conducted as announced and a first hike of the main refinance rate won’t arrive until the third quarter of 2018.
With regard to other central bank chiefs, the official program will not be released until Thursday at 8:00PM ET (2:00GMT Friday), but Bank of England governor Mark Carney has reportedly decided to skip the event.
Although the Bank of Japan has yet to confirm chief Haruhiko Kuroda’s schedule, the head of the BoJ has attended each annual event since becoming the governor of the Japanese monetary authority in 2013.
Euro vs. dollar event
With all the focus on Yellen and Draghi, currency traders are positioning themselves for the possible outcome.
In its weekly outlook, Barclays suggested that the risk for the euro surrounding the event is “biased to the downside and that euro bulls might be disappointed by a lack of meaningful hints on ECB monetary policy normalization.”
“In contrast, we see modest upside risk to the dollar, given the possibility that a confident Fed message is delivered in the context of low market pricing for the Fed’s rate path and short dollar positioning,” these experts explained.
“Recent economic data softness and concerns over Trump’s ability to achieve policy goals are some negative factors for the dollar, however,” they added.
In their trade for the week, they positioned for EUR/USD weakness.