Imagine an annual conference where the top central bankers in the world, alongside finance ministers of the most powerful and richest countries, leading financial market investors and academia all meet to discuss important economic issues that faces the world. Or as some believe…decide to set the world on a path by coordinating monetary policy. I am of course describing a real annual conference which occurs annually in Jackson Hole, Wyoming which is sponsored by the Federal Reserve Bank of Kansas City. The infamous Jackson Hole Symposium.
Stock Markets will be eager to hear what comes out of this symposium, with Fed Chair Powell himself speaking on Friday. Why is this conference important? And why right now? Sure the conference may bring up topics such as climate change and inequality, but let’s be honest, the big discussion will be about monetary policy under the pandemic and how monetary policy will shift on the ‘recovery’.
For months on end, all we have heard about is tapering. Investors and financial pundits have been debating on when the Fed tapers, and when the Fed begins to raise interest rates. Inflation has been key to a lot of this. The average person has seen and felt the affects on inflation, but the Fed tells us not t worry, this inflation is temporary or ‘transitory’. This has been the reason why the Fed has not hiked interest rates, claiming once the transitory inflation disappears, everyone will see that the economic data is not quite to the Fed’s criteria in determining
Market participants will be waiting to hear what Powell says on inflation. But the most important thing that I, and many others, will be watching for is Powell’s comments on tapering. Or even better, some sort of tapering timeline. With non farm payrolls and economic data coming out positive, many believe the Fed is ready to start talking about tapering. This was even confirmed in July’s FOMC minutes, ” “most participants” thought that “it could be appropriate to start reducing the pace of asset purchases this year”.
All eyes (and mostly ears) will be on Powell and whether he provides any hints about a tapering timeline. But many analysts expect Powell to remain reserved, and will emphasize the same points he has mentioned in previous Fed meetings, the economy is strengthening and the Fed is discussing tapering. Analysts also expect any tapering announcement from the Fed to come at November’s meeting. But remember: the Fed has to ease the markets to eventual taper in order to avoid a taper tantrum market sell off. Which would mean giving us possible tapering hints very soon.
Where does Jackson Hole come into all of this? Well, central bankers can discuss how an eventual taper would like like…and would agree to do the same to prevent any crazy currency fluctuations.
There is some drama though. There always is. The Reserve Bank of New Zealand was one of the first central banks to taper. For my Canadian readers, the Bank of Canada did so as well by reducing their bond purchases from $4 Billion per week down to $3 Billion per week. The market was expecting a New Zealand rate hike last week. It didn’t happen. Due to new lockdowns in New Zealand, the central bank said they may need to reconsider when to hike rates.
For those that believe central banks can never raise interest rates due to all the debt out there…and the fact they need cheap money to continue to keep assets and the market afloat, then the variant is the central banks best friend. An excuse to continue cheap money policy and talk down all tapering expectations from the market.
This might be the case from the price action I am seeing today on stock markets. Fed President Kaplan was one who seemed to be dissenting from the opinions of other Fed Presidents. He wanted tapering and the raising of interest rates sooner than later. Well guess what? Due to Delta, he has now said he may need to re-evaluate his view on tapering if the variant curbs economic activity. The markets loved this.
To add even more drama, just over the weekend, it was decided that due to Delta variant, the Jackson Hole Symposium would NOT occur in person. The conference will now take place virtually…something not many people were expecting. It’s very likely we will be hearing about the variant and how the Fed may need to hold policy just to see how things play out in the Fall.
Everything was popping today. Stocks, Oil, Gold, Silver, Crypto’s were all popping earlier this morning. Some said it was because of the FDA approving the Pfizer vaccine. Others say it was because of Fed Kaplan’s comments, and the markets pricing in cheap money continuing with Jackson Hole going virtual.
My readers know my opinion. I find it hard to believe interest rates will go up with all the debt. We know the Biden administration is working on another $3.5 Trillion infrastructure bill. Weeks after passing a $1 Trillion bill. Now it’s hard to even remember how many trillions have been shelled out. Higher rates wouldn’t just hurt consumers, but would also mean governments would need to pay more for the debt (or they could raise taxes…which isn’t the best idea right now).
What we will do is watch the 10 year yield. This market tells us what the Fed will do rather than say. And right now, it remains stable, which is good for markets.
The S&P 500 is making new record highs. It held our support zone (black horizontal line) and the buyers stepped in. But this is not new to my readers. Right now we just keep buying the dip. When we see pullbacks, we tend to see just one swing on the 4 hour charts, while the daily chart sustains the previous higher low.
New record highs on the Nasdaq as well. Techs are pumping. Nvidia a big mover today (largely due to traders joining Nancy Pelosi who is literally the best trader right now). Typical breakout structure going forward: previous resistance becomes new support on a retest.
So this will be a big week for monetary policy. Does the Fed hint at tapering? Give us a concrete language on tapering? Or warn us they may need to re-evaluate due to Delta?
Just looking at the stock markets, you can clearly see what the market is pricing in. It ain’t no taper tantrum.