This week the financial world is spellbound on the small US town of Jackson Hole in the state of Wyoming at the foot of the Rocky Mountains. The reason: the world’s most important central bankers meet there for their annual economic symposium.
At this meeting, the central bankers might discuss further, noticeable interest rate hikes. This “threat” has been weighing on the stock markets for a few days. But that fear will go away. 2022 will be the year of rate hikes, but as early as 2023 I expect rate cuts to stimulate the economy.
Back to the meeting in Jackson Hole: Since 1978, an average of around 120 central bankers, academics, representatives of international financial organizations, government officials and media professionals have come to the annual Kansas City Economic Symposium at the invitation of the Central Bank of Kansas City.
Since 1982 in Jackson Hole
The symposium has been held in Jackson Hole since 1982 – and thus for 40 years. At that time, you wanted to show off with a big name. Paul Volcker, who died in December 2019 and was the Fed chairman from 1979 to 1987 and the monetary policy giant par excellence at that time, was only attracted by the prospect of a round of fly fishing.
Since then, the world has come together in Grand Teton National Park, including this week from Thursday to Saturday. Why is this event so important? Because historical things have been decided and announced there in recent years.
For example, the “taper tantrum” surprisingly announced by then Fed Chairman Ben Bernanke in 2013. This means that Bernanke had announced that the bond purchases would end earlier.
The result was that investors massively hit the sell button on bonds, which caused bond yields to rise sharply. The appearance of former ECB boss Mario Draghi in 2014 was similarly trend-setting: Draghi had initiated the historic decision to buy bonds on a massive scale. This also triggered a leap of joy on the stock market.
Fed chairman’s speech eagerly awaited
The speech by US Federal Reserve Chairman Jerome Powell is awaited with particular excitement this year. After the summer rally, which we saw well into last week, a mix of fears of inflation, the threat of recession and further energy shortages have recently made investors more nervous once more. The stock exchanges ran out of steam.
Investors are hoping the Fed chair’s speech will provide clues as to when the current cycle of rate hikes may end. It is also quite possible that Powell is more “hawkish” – that is, more in the camp of the so-called hawks, which would probably mean that he is not sending any relaxation signals.
It is clear that inflation must be brought under control. However, it is unclear whether interest rates in the USA will be raised once more by this magnitude following the last two hikes of 75 basis points each (ie by 0.75%) or “only” by 50 basis points. We will probably not have any clarity until September as to whether or not the Fed will slow down its pace of interest rate hikes.
It is already clear to me, however, that you still cannot avoid investing in equities if you want to achieve a positive real return (return taking inflation into account).
