Jackson Hole
Since the 1980s, one of the conferences bringing together the largest number of central bankers and economists from around the world has been held at the end of each summer in a small mountainous town in Wyoming. This small town is Jackson Hole. The history of the choice of this venue is comical, and investor and media interest in this conference is more recent than one might imagine.
Every year since the late 1970s, the Kansas Fed has organised a symposium to discuss important economic issues of the day. In 1982, after several had been held in different towns without meeting the expected success, the Kansas Fed was very keen to invite a big name to arouse interest.
This choice fell on Paul Volcker, the head of the Fed. Since Volker was a fishing enthusiast, the organisers were looking for a place renowned for its fish-bearing waters in order to ensure that this legend would be present. As August is not the best fishing season due to excessive temperatures, the organisers ended up choosing Jackson Hole, 2,000 metres above sea level. Following this symposium, the conference gained in importance.
However, the Jackson Hole conference really gained its reputation when Ben Bernanke was the Chair of the Fed. On several occasions, he announced or outlined very important future monetary policy decisions there. This was notably the case in 2010, when he set out the possibility of a second quantitative easing programme which actually began in November of the same year.
Should we expect important announcements at the 2021 symposium? Possibly so. After the huge stimulus programme implemented following the emergence of Covid 19, the American economy has rebounded strongly and there are some signs that appear to justify the withdrawal of these easing measures and the start of the normalisation of monetary policy. Several voting members of the Fed have recently communicated in this sense. The market also seems to expect liquidity withdrawals to begin in late 2021 or early 2022, which would confirm the announcement of the programme details for the end of Q3, start of Q4 2021.
If Jerome Powell outlines his normalisation plan during the Jackson Hole conference, it is possible that this will catch some investors by surprise and, in a context where risky asset markets are performing well, we could see an increase in volatility while the market digests this change in monetary regime. This possibility is integrated into our investment strategy by protecting part of the equity risks of our portfolios through the purchase of PUT options. We will therefore closely follow the Fed chair’s speech during this conference which will be held from 26 to 28 August and will be vigilant as regards the market reaction in the event of any surprise.
