Explained | Why US Fed’s Jackson Hole conference is a big deal

Jackson Hole started as any other economics conference. The first four conferences were on agriculture, given the importance of the sector in this part of the US. In 1982, it organised the first conference on the monetary policy theme titled ‘Monetary Policy Issues in the 1980s’.

The 1982 conference was attended by then Federal Reserve Chair Paul Volcker, which set a precedent of sorts as most subsequent conferences were attended by the Fed chairpersons/senior officials. In 1982, the conference was attended by eminent macroeconomists and monetary policy scholars such as James Tobin (Nobel Prize in 1985), John Taylor (of Taylor Rule), William Poole (who became head of San Francisco Fed later), and so on.

In 1989, then Fed chair Alan Greenspan also made a speech at the conference. This added to its aura as now it was not just about the attendance of the US Fed chair but also about the remarks/speeches at the conference.

As linkages between monetary policy and financial markets deepened post-1990s, market participants started tracking the Fed chair’s remarks to figure the direction of the monetary policy.

Since 1982, the conference has been held 41 times including the 2021 edition. The theme has usually been around macroeconomics, monetary policy, long-term growth and policy, including the 2021 theme on ‘Macroeconomic Policy in an Uneven Economy’.

In 1990, the conference on ‘Monetary Policy Issues in the 1990's’ had representations from the erstwhile USSR, Czechoslovakia and Yugoslavia, and Bulgaria.

Gradually, the forum was attended by governors and central bankers from major advanced economies in Europe and Asia. This led to the financial markets in these respective economies tracking speeches and remarks from both global central bankers and representatives of their country’s central banks.

What makes Jackson Hole so special?

In many cases, it sets the agenda for monetary policy and shaped star economists.

The 1996 edition raised the importance of price stability. The 1999 edition highlighted the interaction of monetary policy with asset markets.

The 2005 edition was a swansong for Greenspan where his policies were praised only to be tarnished during the 2008 crisis.

The 2007 edition focused on housing and monetary policy where chair Ben Bernanke expressed confidence that the subprime housing markets are unlikely to lead to a crisis only to be proven wrong a year later.

The 2008 crisis led to increased attention on financial stability which was the theme in both the 2008 and 2009 editions.

In recent years as monetary policy has struggled to elevate inflation to the 2 percent target (for the US), there have been discussions on unconventional monetary policy (2013), designing resilient monetary policy frameworks (2016), monetary policy challenges in the next decade (both 2010 and 2020).

In 2020, Fed chair Jerome Powell released a new monetary policy framework named Average Inflation targeting which has become a major discussion point amidst the central banking research community.

The conference even catapulted the careers of economists. The name that comes to mind is that of Raghuram Rajan who had questioned the financial market developments in the Greenspan swansong edition in 2005. Rajan was dubbed a ‘luddite’ then but had the last laugh as the 2008 financial crisis engulfed the world economy.

What should we expect from the 2021 edition?

The theme of the 2021 conference is ‘Macroeconomic Policy in an Uneven Economy’. The global economy has been highly uneven due to the pandemic shock with rising inflation amidst stagnant growth prospects.

Conference watchers will keenly follow this edition as it is expected to be attended by US Treasury Secretary Janet Yellen, and Powell. This is rare as usually, the treasury secretaries do not attend the conference. Yellen is no stranger to Jackson Hole as she was the chairperson before Powell, and has been a chief speaker at the conference. If both attend and speak, it will be interesting as both the guardians of fiscal policy (Treasury) and monetary policy (Federal Reserve) will get together to provide solutions to the uneven economy.

They have to answer some big questions facing the US economy which will also impact the world economy. The foremost question is whether the fiscal and monetary stimulus will continue to remain in the US economy, and for how long.

The financial markets in emerging markets will see if Powell mentions the word taper in his speech and whether Yellen has anything to say on the interlinkages between fiscal and monetary policy.