At Jackson Hole, Don’t Forget about Rates
This Friday marks one of the most important economic events of the year. But even Jackson Hole could not escape the threat of the latest variant, as the Kansas City Fed recently announced that due to an elevated covid risk, the event is to be held virtually.
The public is welcomed to tune in this Friday, August 27, at 10 a.m. EST via the Fed’s YouTube channel. It’s encouraged to watch. We should take interest in what they have planned for us. In fact, it’s the least we can do, since tax dollars and currency debasement fund such planning activities …
Started in 1978, the Kansas City Fed explains:
The Federal Reserve Bank of Kansas City’s Economic Policy Symposium in Jackson Hole, Wyo., is one of the longest-standing central banking conferences in the world. The event brings together economists, financial market participants, academics, U.S. government representatives and news media to discuss long-term policy issues of mutual concern.
When the wealthiest people in the country meet in seclusion in one of the wealthiest counties in America, it makes sense they’ll discuss ideas of mutual concern. However, judging by their repeated free market interventions, it cannot be said this includes a concern for the public.
Jackson Hole always includes a topic or theme. This year’s theme: Macroeconomic Policy in an Uneven Economy. Details regarding the topic have yet to be released. But the word “uneven” has a false connotation: it sounds like they have the ability to intervene in a way that will make the economy a more “even” place.
Talk of the Fed’s expected tapering, or slowing down their $120 billion–a-month bond purchases persist on news headlines. Reuters explains that Tuesday’s rise in the global equities and Treasury yields are partly due to investors who became
less worried the Federal Reserve was set to announce a timetable for tapering stimulus measures.
The Fed’s rising concerns over variants and their decision to hold the economic symposium virtually seem to portend the recovery is not going as planned; therefore the Fed might not reveal a date as to when the taper will begin.
While the question over the tapering is a good one, money supply is not the Fed’s only area of control: What about interest rates?
Interestingly enough, the August 1 to September 30, 2007, Jackson Hole meeting sheds some light on the future. The title theme was Housing, Housing Finance, and Monetary Policy. This was only a few months prior to the formal recession, and Ben Bernanke said in a speech:
[I]interest rates have risen from the low levels of a couple of years ago, we have seen a marked deterioration in the performance of nonprime mortgages.
At the time, the Fed’s 2007 effective federal funds rate hovered around 5 percent, while the “low levels” Bernanke refers to were in 2003 at around 1 percent. Today’s rate is only at 0.10 percent.
Ultimately, rates rose from the 2003 rates to the high in 2007, and eventually the stock and housing markets crashed. Whether the rising rates and the market crashes are related, and whether the Fed is to be blamed is a matter of perspective.
Yet, we cannot forget interest rates will have to be addressed, one day. The difficulty is in conceptualizing this when the last significant rate increase occurred nearly twenty years ago. Since then, there was only one small rate increase to just over 2 percent, just prior to this recession in 2019, oddly enough. Today with rates approaching 0 percent, even 2 percent begins to sound extreme, and few can fathom 5 percent.
Also consider that on this day in 2004, the US national debt was only $7.3 trillion and now it’s at $28.6 trillion; yet it seems no one has calculated what the cost of debt would be if rates were multiples higher than today’s rates. As for the stock market, interest rates, valuation of companies, and investment decisions will change significantly if we see higher rates in the future.
This year at (virtual) Jackson Hole, it would be nice if Powell spoke about the sustainability of artificially low rates and what this means in the decade ahead. Of course, the Fed could never address the issue and commit to keeping low rates for an indefinite period of time. But what about the public’s concern with not living in a state of perpetual asset bubbles, boom, busts, and bailouts? Or did that not make it onto the agenda?