The Jackson Hole symposium is an annual event hosted by the Federal Reserve Bank of Kansas City where dozens of central bankers, finance ministers, academics, and financial market participants from around the world gather to discuss a topic. This year the topic was “Designing Resilient Monetary Policy Frameworks for the Future,” but in reality no one, apart from possibly some academics, really cared of about the topic. What they were really interested in is the speech made by Janet Yellen and what she had to say about the outlook for US monetary policy in the future limited to the next few months.
Economists and commentators singled out the most important section of the speech as being the part which stated, “In light of the continued solid performance of the labor (sic) market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” Central bankers are not known for their directness but this statement seems to be relatively blunt. However, US bond and currency markets took little notice until Stanley Fischer, who is deputy to Janet Yellen on the Board of Governors, responded to a question regarding rate increases this year by saying the US Fed chief’s speech indicated a September rate increase was possible as well as an additional one later in the year.
The US bond market reacted by sending yields higher. 2 year and 10 years yields both rose 7bps to 0.84% and 1.63% respectively while the USD rose against other currencies. The market has seen this before though and, as Richard Franulovich from Westpac put it, “A rate hike is on the table but she is not committing to it.” As always, a decision to raise the official rate is “data dependent”.