The world’s central bankers, policy wonks and other financial bigwigs head to Jackson Hole, Wyoming this week for the annual retreat sponsored by the Kansas City Federal Reserve. Even though it has been four years since then-Fed Chairman Ben Bernanke surprised the markets by using Jackson Hole as the springboard for the second round of quantitative easing (QE2), the financial media still treat the event as if major policy announcements are the norm.
I would not expect any fireworks this year.
My guess is it will be more of the same narrative, which is that the world is much better off than in the aftermath of the crisis, but not so good that we can normalize interest rates.
One possible place where the central bankers can push the envelope is in assessing the state of labor markets. In fact, the working title for this year’s conference is “Re-evaluating Labor Market Dynamics.”
Will they re-evaluate labor market dynamics this year? I hope so. A true assessment, however, would cut into the two chief activities at Jackson Hole – back-patting and barbecue. Will, for example, central banks discuss the recent report by the Bank for International Settlements, which said the ultra-low interest rates are creating a “permanent instability?” Has the policy response since 2009 created an even bigger, untamable monster by simply pulling forward future economic gains to pay for today’s level of consumption? Has the “blunt instrument” nature of monetary policy created unintended consequences such as malinvestment (as say the Austrian school economists) and income inequality (as highlighted in Thomas Piketty’s “Capital in the 21st Century”)?
If, by the end of the week, the financiers and policy makers are experiencing a bit of indigestion, it may not be from the ribs and baked beans. It may be conversation between meals.