Powell @ Jackson Hole Symposium - Any Surprises?
Abraham George Macro Musings
Later in the day today, we should hear from Fed chairperson Jay Powell. He will be speaking at the annual Kansas City Fed economic symposium. This event, typically hosted in Jackson Hole in a casual setting has a history of gathering the world’s most powerful central bankers and economic minds. Unfortunately, it will be an online meeting this time and Powell will deliver a prepared speech. This annual get together and symposium has been in existence since 1981.
Interestingly, the Kansas City Fed moved the event to Jackson Hole back in 1982 to make it easier for the then Fed Chairman Paul Volcker to attend. Volcker was a very big fly fishing enthusiast and the Jackson Hole settings provided that. Volcker at that time was aggressively battling high inflation with very aggressive measures to contain it by raising interest rates.
Why is Jackson Hole important? In 2010, Fed Chairman Bernanke announced QE2 in his Jackson Hole speech. Two years later he again telegraphed QE3 at the same event. In 2014, Mario Draghi (Head of the ECB) announced aggressive action from the ECB to fight deflationary pressures at the same event. A few days later a massive bond buying program was formally announced.
Ever since the Volcker-era, the markets are entering a period of the most dangerous inflation period we can think of. Will Powell be able to pull off some surprises?
Remember in one of my earlier letters, I’d mentioned that in a town hall meeting how Powell spoke so highly about Volcker. Powell praised Volcker for taking some very bold steps by pushing the country into recession for the greater good. Powell admiringly called Volcker the ‘the most distinguished public servant in economics in his lifetime’.
Volcker was single-minded and what he did can never be repeated by Powell. The world has changed a lot since then and have become much more closer with a lot of inter-dependencies. So, whatever the Fed does will have ripple effects around the world. There is no chance the Fed will raise rates now. The Fed will prepare the markets more for that. So what can Powell do? I think there is a good chance that Powell will hint about tapering or talk about the withdrawal of the monthly 120 bio of bond buying program.
This can create short term jitters in the market but that should be overcome by the massive liquidity that is coming down the pike.
What effect will it have on the USD/INR? The Indian Rupee has been in a one-figure range for quite a long time and volatility has been suppressed. If the status quo stays, I think the Rupee may strengthen and break below 74. If there are more measures on tapering, the Rupee may trade above 75.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.