August 22, 2024 - 10:00am
The US Federal Reserve Board gathers today in Jackson Hole, Wyoming for its annual retreat. People in high finance will say that Jackson Hole is the Woodstock of central bankers, though that may say more about central bankers than about the event. Nonetheless, the proceedings are scrutinised carefully by economists, bankers and fund managers around the world, probing for clues as to the direction of the worldâs biggest economy.
Running since 1981, the event brings together the governors of the American central bank, along with leading academics, government officials, corporate leaders and foreign guests for three days of brainstorming on the global economy, the state of markets and the future direction of policy. It seems fitting that this yearâs event should start just as the Democratic Convention is ending in Chicago, because it takes place at an extraordinarily precarious moment in the countryâs political history.
The economic context is delicate enough on its own. The economy seems to be teetering on the brink of a recession and markets have been screaming for interest rate cuts to stave one off. However, inflation hasnât yet reached the point at which the Fed can conclude that it has decisively won the battle to bring it back to earth. As a result, itâs not yet clear if the Fed has waited too long to cut rates, or risks doing so too early if it moves soon.
But itâs the political backdrop that makes this yearâs retreat so fraught. Both sides of the American political divide are calling this yearâs presidential election the most consequential in the countryâs history. Democrats say freedom is on the ballot and Republicans say that if they lose, Americans wonât have a country anymore. The stakes could barely be higher, which means the vote will be hotly contested and possibly disputed.
Amid all this, the Fed has to decide when to begin its rate-cutting cycle, and how far to take it. Investors widely expect it to make a first move next month, starting with a 0.25% cut to its target Federal Funds rate, which currently sits in the 5.25-5.5% range. It may not seem like a lot, but it would signal to markets the future direction of travel. And while the governors will be guided by the data on inflation and the economy in making their decision, no matter how justifiable their decision may be, it will immediately get spun politically.
Depending on what the Fed decides to do next month, the stock market could rally, or it could sink. The dollar, already weakening, could plunge. Interest rates might shoot up. In light of all this, thereâs a good chance the governors may use their speeches to break it to the markets gently, indicating a steady-as-she-goes approach to cutting gradually in the context of growing confidence that the economy is bearing up well. If at the end of it what they get is a soft landing â slower if steady inflation, slower but steady growth, gradual easing of interest rates and neither a crash nor boom in the stock market â if in short they can arrange an economy so unexceptional they stay out of the headlines until after the election, theyâll no doubt feel relieved.
John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a religion (Simon & Schuster, 2017).
jarapley
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SubscribeAgenda item one: how much more pain can we cause to regular people while creating fabulous new investment opportunities for ourselves and our cronies.
> The dollar, already weakening, could plunge.
Okay the dollar might be weakening but there isn’t much else for people to look to, since it’s all relative I’m pretty confident in the dollar. Especially since the only real challenger the Renminbi is having even bigger issues.
Here’s the problem playing games with numbers will never change the underlying reality, not to mention people are lying about the numbers constantly. Here’s the facts America and the Euros are producing less stuff than they ever have before most of their economy is built on nebulous services and hype and what little manufacturing capacity they do have has been diverted to the production of arms and armament to stave off the Russian menace. That’s the fact of the matter, cutting interest rates will only produce stagflation because we are in a situation where there just isn’t enough stuff.
But the elite managerial class like all technocrats believe if we just give them more time and more power than surely this time they will figure out a solution that really will fix things. The real solution involves bringing back manufacturing locally isolating China internationally and doing something about big hedge funds buying up housing.
Who is John Galt?
BRICS unit project is moving forward at pace. Won’t take over dollar anytime soon, but it will start reflecting the dollar with the tide going out. Abuse of privilege doesn’t usually end well.
Hate to bring bad news, globalism is here to stay, if it’s not China then it’s Vietnam or Thailand or Mexico, the list is endless. Low cost manufacturers are not going back to the US or Europe where costs are too high and labor is hard to get. If inflation is to remain low, industry needs low costs and productivity. And China will remain a powerful economy for decades to come even if they have issues.
If Democrats win the White House and also control of Congress this November, the Federal Reserve will have a major problem on its hands. Given the proposed policies weâre seeing from Democrats, stagflation seems inevitable. If the Fed then chooses to stimulate growth with lower interest rates, wealth inequality will grow wider on the Democratsâ watch since markets will most likely respond positively while the Main Street economy continues to struggle. If the Fed chooses to tame inflation, economic growth is subsequently stifled while markets respond negatively.
I realize the U.S. Federal Reserve supposedly employs thousands of smart people and that the view of an UnHerd commenter means little. But if you look at the Fedâs track record for the past few decades, Iâm quite certain I could have at least matched it had I been in charge.
The US economy is “teetering on the brink of recession”? In what universe, precisely? Y-o-Y GDP Growth for the last four quarters has been 4.9%, 3.4%, 1.4% and lastly 2.8%. Job creation is still solid. see http://www.tradingeconomics.com. Half a percent off the overnight rate makes little odds to the average Joe paying an APR of 20%+. It only matters to large capital owners engaged in oversized speculation or levered trades in property. Those are the ones plaintively “clamouring”.
Fed is now Revision Central – its lost all credibility around data governance.. US has been in recession for some months.