Will Jackson Hole Guide Us To A Rate Hike?

Central Bankers, policymakers, academics and off course economists from across the globe are gathering in Jackson Hole, Wyoming these days.

The Annual Symposium in its Mountain Resort is regarded as a key event which in particular gives a guidance on the line of thought of central bankers. Although Fed Chair Janet Yellen is not present, there are a lot of other speakers which will most likely deliver some interesting quotes. Since the theme of this years’ symposium is “Inflation Dynamics and Monitory Policy”, we should brace ourselves for high impact news. Luckily, the most important discussions are after Wall Street’s close on Friday, so we have at least Sunday to digest.

Who will steal the show?

There are a number of panelists who are worthy to take a close look on their discussions. However, most attention will go out to Swiss National Bank Chair Jordan (Friday 10.25 a.m. EST) in the Discussion “Central Bank Perspectives on Inflation Dynamics, and Bank of England’s Carney, ECB’s Constâncio and Fed’s Fischer in the discussion on Global Inflation Dynamics (Saturday, 10.25 a.m.). Let’s take a close look on each participant and on what the current situation is and on which subject we should monitor their words closely:

Thomas J. Jordan (SNB)

The SNB drew attention earlier this year by removing its currency-peg to the Euro. As a result, the Swiss Franc (CHF) surged from 1.20 per Euro to below 1.00. Since then, Jordan has stated several times that the SNB sees the CHF as too strong and that it keeps its options open for interventions. The CHF weakened significant during the recent weeks, and is now in the area of EUR/CHF 1.08-1.09 (USD/CHF 0.96/0.97). The SNB has a negative benchmark rate (-1.25 to -0.25). It also holds a significant amount of foreign assets (CHF 525bn). Switzerland is still battling with deflation (1.2% YoY in July), however this morning news came in that GDP increased 0.2% QoQ, while economists expected a contraction. Question is how does the SNB see current inflation expectations and will Chair Jordan tell us something of the weakening path of the CHF lately. How does he see the interaction of growth and inflation for his country? And off course, does he think SNB or more general Central Banks should be more active in spurring inflation? His views will be important for the currency markets.

Mark Carney (BoE)

Bank of England is seen as one of the few Central Banks who may start with a lift off in rate hikes. The British economy grew 0.7% QoQ in Q2 and Business Investments rose with a better-than-expected 2.9% in the same period. Despite the upward path of the UK figures, the Board’s minutes earlier this month sounded more dovish than expected. Will Carney mention his reservations or will he sound more hawkish? Also his quotes are more important for Forex, since the British Pound (GBP) weakened in the recent weeks.

Victor Constâncio (ECB)

Fellow ECB Governing Council Peter Praet keeps additional measures open for the Eurozone, will Constâncio follow this line? As for now, the actions of China may put pressure on the Eurozone, since especially Germany is an important trading partner of the country. But economic indicators are ok, and this morning preliminary inflation figures for Germany came in a little higher than expected. Is it really time for more action? Let’s see how dovish Constâncio sounds. Does he quote the standard ‘ECB ready to act, within its mandate, if needed’-line? Probably the least ‘shocking’ panelist-member this weekend. However, very dovish words might ignite more rotation into European shares and put pressure on EUR-exchange rates.

Stanley Fischer (Fed)

The star this weekend is Stanley Fischer and his words may be regarded as the highlights of Jackson Hole. Will he sound hawkish, is his door to a rate hike open? Naturally, he won’t say anything clear, but with the next FOMC meeting in 2.5 weeks, this is probably the last real occasion to prepare markets for a lift off. Anything hawkish, any positive mention regarding inflation will be seen as a higher likelihood of a first rate hike by the Federal Reserve. Expect high impact quotes for currency markets, bond market and stock market.

For now, let’s sit back and wait for quotes. An interesting other panelist is Governor Raghuram Rajan of India’s Central Bank. His words might show less impact on the markets, but he is often very clear in his speeches and words. Probably plenty to read this Sunday, but hey, the NFL season has not started anyway, so what should we do else?