Need to synthesize & contextualize Jackson Hole fed meeting. What is significant about it, how often does Jackson Hole happen? What is different about it. Need to identify & study each of the Fed chairs of each of the districts, or whatever they’re called, the 12 heads of the banks that make up the Federal Reserve. Have done well enough to begin to grasp how Fed influences interest rates, need to continue to study this, but next area of study is understanding the anatomy of the Federal Reserve.
Need to continue building out FOMC meeting chart. Have done well in building it out from 2000 until now, need to build it out for the 70’s. Ultimate goal is to build it out starting from the inception of the federal reserve, or the FOMC, which I think was in 1936. Federal reserve began in like 1911 or 13 or something.
- (Federal Reserve created December 23, 1913 Source) (FOMC: body called the Federal Open Market Committee was first convened in 1933, following the Glass-Steagall Act; but the FOMC as we know it came into effect only in March of 1936 “as constituted by Section 12A of the Federal Reserve Act as amended by the Banking Act of 1935,” as the newly named chairman, Marriner Eccles Source)
Hell yes I remembered the years well enough.
Studying Jackson Hole Speech
Transcript of speech below, initially transcribed from youtube but then found source on Federal Reserve page fuck yes (Source) (bolded are my edits):
“Thank you for the opportunity to speak here today.
At past Jackson Hole conferences, I have discussed broad topics such as the ever-changing structure of the economy and the challenges of conducting monetary policy under high uncertainty. Today, my remarks will be shorter, my focus narrower, and my message more direct.
The Federal Open Market Committee’s (FOMC) overarching focus right now is to bring inflation back down to our 2 percent goal. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all. The burdens of high inflation fall heaviest on those who are least able to bear them.
Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.
The U.S. economy is clearly slowing from the historically high growth rates of 2021, which reflected the reopening of the economy following the pandemic recession. While the latest economic data have been mixed, in my view our economy continues to show strong underlying momentum. The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers. Inflation is running well above 2 percent, and high inflation has continued to spread through the economy. While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.
We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2 percent. At our most recent meeting in July, the FOMC raised the target range for the federal funds rate to 2.25 to 2.5 percent, which is in the Summary of Economic Projection’s (SEP) range of estimates of where the federal funds rate is projected to settle in the longer run. In current circumstances, with inflation running far above 2 percent and the labor market extremely tight, estimates of longer-run neutral are not a place to stop or pause.
July’s increase in the target range was the second 75 basis point increase in as many meetings, and I said then that another unusually large increase could be appropriate at our next meeting. We are now about halfway through the intermeeting period. Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.
Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy. Committee participants’ most recent individual projections from the June SEP showed the median federal funds rate running slightly below 4 percent through the end of 2023. Participants will update their projections at the September meeting.
Our monetary policy deliberations and decisions build on what we have learned about inflation dynamics both from the high and volatile inflation of the 1970s and 1980s, and from the low and stable inflation of the past quarter-century. In particular, we are drawing on three important lessons.
The first lesson is that central banks can and should take responsibility for delivering low and stable inflation. It may seem strange now that central bankers and others once needed convincing on these two fronts, but as former Chairman Ben Bernanke has shown, both propositions were widely questioned during the Great Inflation period. Today, we regard these questions as settled. Our responsibility to deliver price stability is unconditional. It is true that the current high inflation is a global phenomenon, and that many economies around the world face inflation as high or higher than seen here in the United States. It is also true, in my view, that the current high inflation in the United States is the product of strong demand and constrained supply, and that the Fed’s tools work principally on aggregate demand. None of this diminishes the Federal Reserve’s responsibility to carry out our assigned task of achieving price stability. There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.
The second lesson is that the public’s expectations about future inflation can play an important role in setting the path of inflation over time. Today, by many measures, longer-term inflation expectations appear to remain well anchored. That is broadly true of surveys of households, businesses, and forecasters, and of market-based measures as well. But that is not grounds for complacency, with inflation having run well above our goal for some time.
If the public expects that inflation will remain low and stable over time, then, absent major shocks, it likely will. Unfortunately, the same is true of expectations of high and volatile inflation. During the 1970s, as inflation climbed, the anticipation of high inflation became entrenched in the economic decision making of households and businesses. The more inflation rose, the more people came to expect it to remain high, and they built that belief into wage and pricing decisions. As former Chairman Paul Volcker put it at the height of the Great Inflation in 1979, “Inflation feeds in part on itself, so part of the job of returning to a more stable and more productive economy must be to break the grip of inflationary expectations.”2
One useful insight into how actual inflation may affect expectations about its future path is based in the concept of “rational inattention.”3 When inflation is persistently high, households and businesses must pay close attention and incorporate inflation into their economic decisions. When inflation is low and stable, they are freer to focus their attention elsewhere. Former Chairman Alan Greenspan put it this way: “For all practical purposes, price stability means that expected changes in the average price level are small enough and gradual enough that they do not materially enter business and household financial decisions.”4
Of course, inflation has just about everyone’s attention right now, which highlights a particular risk today: The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched.
That brings me to the third lesson, which is that we must keep at it until the job is done. History shows that the employment costs of bringing down inflation are likely to increase with delay, as high inflation becomes more entrenched in wage and price setting. The successful Volcker disinflation in the early 1980s followed multiple failed attempts to lower inflation over the previous 15 years. A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year. Our aim is to avoid that outcome by acting with resolve now.
These lessons are guiding us as we use our tools to bring inflation down. We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply, and to keep inflation expectations anchored. We will keep at it until we are confident the job is done.”
Q: We kick off our Jackson Hole coverage of the federal reserve conference. As we always do with an interview with Kansas city fed president Esther George this is her 10th Jackson Hole conference as fed president and unfortunately the last one we understand yes it is well thanks for joining us as always and agreeing to sit down I want to start off where I think the market is most interested uh it’s been an aggressive series of rate hikes and maybe you could shed some light on perhaps how much more there is to go.
So I think when we look at the economy today Steve we still see imbalances. Imbalances between demand and supply and that’s putting high inflation in play. So we still have high inflation—we saw some easing in the July numbers—but I think it remains broad-based so there’s more work to be done.
Q: Some of your colleagues have said they see a sort of terminal rate of 3.75 to four percent. Others have said above four percent which camp do you put yourself in or neither?
Well I think for this year uh we do we have three more meetings. We know we still have more progress to make and what I’m really looking for is to say when do we see the turning point in inflation. When can we begin to see where that terminal rate might rest because I don’t think we know yet where that may have to settle out but it will be higher than it is today for sure.
Q: How will you know it when you see it?
So I think you’ll see a pretty uh convincing deceleration in inflation, and I think for me I will be hearing it in the region. So one of the early indicators for me is always talking to our business contacts—to people in the community—to get a sense of what they are experiencing and where they see that over the next six months.
Q: Do I take it you’re not hearing it now?
I am not hearing it now
Q: What are you hearing?
So right now we continue to hear number one concern is a tight labor market—difficulty finding people to work—and that price pressures are still there. They’ve seen some easing I think on supply constraints but not enough that they can look ahead over the next year and think that isn’t still going to be an issue for them.
Q: Is it three months in a row of good numbers like we had in July, is it four months in a row will give you some confidence?
Well ultimately it’s getting back to our target and so I think to see a convincing trend you’d want to, at least, see three consistent months of data to know where things are. But of course always doing that in the context of what’s going on in the rest of the world; what else is unfolding in our domestic economy at the same time.
Q: The market gets obsessed about things like 50 or 75. Do you want to weigh in on what your preference would be for September?
No.
Q: Great but what is the difference, in your mind? If you did 50 what are you signaling? If you do 75 what are you trying to accomplish, how do you understand the differences between the two?
Yeah I think that’s hard to explain. Obviously doing 75 in June and July sets a pace that I think the public is looking for, what changes that would cause you to step down, and I think certainly at some point getting to a steadier more sustainable pace is going to be important. So I think it’s too soon to say, you know, what should we expect in September because we have some important data that’s coming up and always, for me, an important conversation around that table about what other people are seeing.
Q: Could it be more than 75 in your mind or less than 50?
Well I think after we saw July I think the real question is does the July inflation numbers beginning of seeing other easing that will come in months to come. But far from clear given how broad-based inflation is right now.
Q: You dissented on a recent vote for a very specific reason: it had to do with the relationship between interest rates and the balance sheet and the effort to reduce the balance sheet. Can you explain that do you still have those concerns?
So when I think about the the process of removing accommodation and beginning to tighten policy obviously the short-term interest rate has been our primary focus but we also have a very large balance sheet and our commitment has been to bring that balance sheet down. And of course we will be doing that in a much more volatile environment, more uncertain environment, than we did in 2017 the last time we did this. And so as I looked at the path of rates and thinking about the intertwined effects of a balance sheet, it makes me just watch things a little more closely to see how the markets respond, to see how financial conditions respond to that.
Q: Do you still have concerns that raising rates by 75 basis point increments could endanger the effort to reduce the balance sheet?
Well we certainly have done a lot of interest rate increase in a short amount of time—nothing I’ve seen in my time on the FOMC—and I think we should still expect that some of that policy will work with a lag. So we’ve seen it hit the housing market pretty quickly but I think its full effects may not be seen for some time. And so keeping that in mind as we move forward with this very expeditious path of rate increases is particularly important to me.
Q: The balance sheet is not rolling off quite according to a schedule. I know there are things that make it go up and down and not be perfect, but are you concerned at all? I see there’s 116 billion dollar reduction since you began in June or so and uh it should be 150 billion by the end of this month. Is that close enough or is there some problem that we’re having that you’re having in terms of reducing the balance sheet?
So remember the caps are being implemented, phased in if you will, right and so they will hit their full effect in September in terms of bringing down the balance sheet. So it is a faster pace than we’ve done before, it is a larger balance sheet than we’ve had before, but I think we’ll have to see how the market adjusts to that.
Q: It’s not just the market but it’s the actual pace of the decline. Should it be hitting uh a certain amount every month or is it going to be plus or minus because of different uh idiosyncratic…
Yeah that’ll be a function of the maturities as they roll off, and of course we’ve made a commitment to a significant reduction in that balance sheet and getting back to a mostly treasuries portfolio so there’s work to be done on the balance sheet for sure.
Q: And how about selling assets is that something that you favor?
I think it’s going to be necessary at some point—particularly given that we’re in a higher rate environment—to get back to a treasuries only portfolio may require making some adjustments there at some point.
Q: I want to talk a little about the inflation process, how do you expect it to cool? Do you think, is it housing that comes down, or the housing price that comes down, is it consumer spending that comes down and eases off um uh on the uh the pressure on consumer prices what’s the process in your mind?
So I think the process we’ve seen a little bit of already, so we’ve seen in the housing some cooling beginning at that point. I guess when I look at the inflation dynamics right now though, we have a fundamental imbalance still between supply and demand and it is very broad-based when we look at the drivers of inflation right now. So what we saw in July we saw some airfares coming off there we saw hotel accommodations car rentals those kinds of things but those were pretty specific categories. I think we’re going to have to see something more broad-based to begin to know that inflation is coming off its highs.
Q: does the unemployment rate need to rise to bring down inflation
So the labor market is very tight and I suspect to get some loosening in that labor market uh you will see higher unemployment.
Q: That leads to the next important area here it’s really a three-part question first—I’ll give you the first two parts now—is it already a recession or will it be a recession?
Yeah so it’s an interesting question that comes up because again when I talk to contacts in my region the things I hear would not be consistent with what you might hear during a recession: difficulty finding labor, a tight labor market, wages rising, adding jobs every chance they get, so that dynamic is not clear yet despite the fact that we had two quarters of negative GDP and added three million jobs. So it’s a it is an unprecedented kind of situation when you think about in recession dynamics.
Q: What does Esther George the Kansas city fed president say? Is it a recession
I think what we see right now is demand is cooling and um I’m going to be watching that data very carefully to see um how much it brings this imbalance back to something to get inflation down.
Q: If it is a recession—this is the third part of the question—how does that change policy, or does it?
Well I think there are always factors that are going to influence our policy that we can’t anticipate. For right now, given the dynamics we see in the economy our charge is pretty clear and that is to bring inflation back to our target. And that remains the focus even as we watch what’s going on around it, and right now that seems pretty clear on the path ahead.
Q: So just to kind of understand that sequence if it seems like it’s a recession and the growth is negative and unemployment rate is rising that wouldn’t necessarily change policy if you’re still above target.
Well when you say, for example, unemployment rising we’re at three and a half percent. If we think about a natural rate of unemployment if we think about what I might have penciled in my own forecast, it is well below that number. So you could see unemployment rise and begin to provide some easing there along with other dynamics in the economy and it’s just hard to predict which one of those will end up being the stronger factors in bringing inflation down.
Q: The title of the conference is ‘Constraints on the Economy’ can you give a preview of what kind of topics that leads to the discussion?
So I’m looking forward to this conference because we’re going to talk about reassessing constraints in terms of how we thought about it over the past couple of decades. So over the past few decades, as you know, the issue has really been do we have enough demand in the economy? We had relatively low inflation. We now are focusing more on supply and what a supply shock has done, the inflation that’s accompanied that the kinds of policies that have come along the past two years so I think it’s a good time to revisit those constraints as we’ve uh talked about them in the past and see what it means uh in the current environment.
Q: When we talk about those constraints, you talked about some of them already, one of them is labor another is supply uh and that’s globalization. Do you think we’re entering a period, is it possible we’re entering a period here of higher inflation because the things that kept it down in the past are or have gone away.
Well I don’t know if they’ve gone away. I think the question will be, we’ve talked a long time about demographics and what effect they’ve had on uh long-term growth in the economy. So I think the question is, what else is going on maybe that we weren’t thinking about, what other factors, and I think that’s what will be interesting in this conference, is to hear perspectives on what’s changed, what have we not paid attention to that we should pay more attention to now, and what role has policy played in any of this that might change how we thought about it.
Q: I want to get to that in just a second which is really important, but if it is a world of more constraints—more constraints on supply more constraints on the supply of labor supply of goods—does that mean a world of higher federal funds rates?
It could mean higher funds rates. Right now we’re looking at inflation and trying to decide how sticky is inflation, it’s so broad based now, what will it take to bring that down. And so I think, for the near term anyway, thinking about higher interest rates seems reasonable to me. Whether in the long run, again I hope this conference shed some light on that.
Q: You talked about policy. The Fed Chair & others have acknowledged there were mistakes made along the way, I don’t think we need to go over that ground, I guess the question I have is if mistakes were made is there an examination process of how to fix it such as they’re not made again in the future.
I think that’s always important for the central bank and as you know Steve we’ve had a process that created the framework that was put in place a few years ago, the idea of periodically taking a look at how we set policy, how those strategies are fulfilling our mandates in doing that. So I suspect over the next few years that’s going to be an important component.
Q: But it’s unfortunate that one of the things that’s blamed for the mistakes that were made is the new framework, right? The idea of of waiting until inflation was obvious before you acted, is that seen as a mistake, something needs to be looked at again?
So I don’t think the frame… I wouldn’t put the burden on the framework, I would put the burden on the experience we’ve had the last two years. This was an unprecedented kind of shock to the economy. We didn’t have a playbook around pandemics, we also saw fiscal policy responding in an extraordinary way. So I think there certainly will be things we need to learn from that experience in thinking about the role of policy, how we judged inflation dynamics over that period, but I wouldn’t lay it at the feet of the framework per se given the nature of what we’ve been through.
Q: One thing that seems a little troubling is throughout the process from the beginning of the easing, through the extended easing while inflation was going on, most of the votes were unanimous for policy. Those unanimous votes, in retrospect, were mistakes. Is there a danger of a group think that needs to be examined at the Federal Reserve?
Well you know I think it’s very important and the committee process provides for the ability to bring different views to the table. You also know there’s not a vote of the entire committee so the voices that are at that committee, whether they’re voting members or not, can affect how the public views whether the consensus was there. But I will tell you, being one that values having the diversity of views, the opportunity to dissent is an important component of how this committee makes decisions.
Q: But it didn’t happen.
It did not happen and you know you’d have to talk to everyone because it’s a very individual decision how you come out on those. Um I will say it was a time of high uncertainty. Again going back to, I don’t want to overuse the word unprecedented but it was, in terms of judging what was happening in the economy whether this supply shock would be met, uh whether the demand would be met in some way so okay a lot of retrospection to think about there.
Q: Okay so uh your 10th Jackson Hole conference as president and you’ve been coming since 2005. which uh I think that’s 17 years what stands out in your mind in memories?
Well every one of these conferences is unique in some way but I think the thread that I always walk away from is the opportunity to bring uh really intellectual rigor to some of these topics that are of importance to global central banks, to have that debate in the room, and then the opportunity in this beautiful setting to be able to continue that conversation throughout the conference. So that is I think always the highlight for me is listening to that debate, listening to how people think about these issues, um and coming away I think with a better understanding hopefully.
Q: All right I’ll give you I’ll give you mine okay I’ll tell you that I remember I remember complaining bitterly about the demographics conference and using the information for many years to come and still today. The other one I remember from that same conference was when Alan Greenspan said we don’t know a lot that’s definite about economics we’d have no like given you know constants but we do know the vast number of people who are 35 years old now in 30 years will be 65. That was one of my favorite my favorite clips that when he told me to look at productivity. Anything particular anecdote that stands out for you?
You know when I think over the, this is our 45th symposium, when you think over that span of time about how many things have changed, we had the Asian financial crisis, we had the eastern European bloc, beginning to come to the conference and raising issues about how they would think about monetary policy. So I think any number of those. 2007 we talked about housing finance and a lot of people at that time said what kind of a topic is that for central bankers to talk about.
Q: Didn’t somebody stand up and make a warning in that was kind of dismissed at this conference?
Yes there was um there were questions about financial stability that actually came a few years earlier and actually turned out to be pretty prescient.
Q: Anything else Esther that you want to add?
No, I’m delighted we’re back here in Jackson Hole again and the chance to uh engage in this topic
Q: Thanks so much Esther.
All right
Q: Great bye
Solace Questions:
What is the Balance Sheet. What does that mean. How does the fed “Bring down the balance sheet”. I think it has something to do with bonds, buying treasuries from holders and thus injecting capital into the environment, but I need to understand more thoroughly.
What is ‘removing accommodation’. Is it removing access to easy capital, low interest capital?
What is ‘Rolling off’ the balance sheet.
“that’ll be a function of the maturities as they roll off.” What are maturities, what does that mean, maturities as in 10 year, vs 5 year, vs 30 year notes, like when they are paid back in full by the government?
She said they’re ‘working to get back to a mostly treasuries portfolio’ what does that mean, is this the fed buying ‘assets’ to support the market? Is the fed buying stocks? What makes up the feds portfolio & why does it consist of that particular makeup?
What does a labor constraint mean.
What was the eastern European bloc
What was the Asian financial crisis