Labour markets in focus at Jackson Hole
The 2014 Jackson Hole Symposium promises to be interesting, focusing on a hot-button topic of particular relevance to the US economy: “Re-evaluating Labor Market Dynamics.”
Given that this is a Fed-hosted conference, the main thrust from Fed chair Yellen will likely be a reiteration of her position that labor market damage is merely temporary, meaning significant excess slack remains in the economy, permitting a gradual withdrawal of monetary stimulus. Among the technical issues likely to be discussed are the distended Beveridge Curve (the relationship between hiring and job openings), the long-term versus the short-term unemployment rate, the demographic transformation underway and the outlook for wage growth.
Our own take is somewhat different than the Fed’s. We believe there is less economic slack than the Fed imagines – due to structural damage from the crisis – and already see signs of wage growth preparing to pick up, via a low short-term unemployment rate, and improving JOLTS survey, and surveys that indicate firms are increasingly willing to raise wages. This argues for a sooner trajectory of rate hikes. Among the international set, the arguments set out by other central banks is likely to be quite varied. Some – such as the Bank of England’s Mark Carney – will seek to manage expectations around the (soon) timing of rate hikes. Others, such as the ECB’s Draghi and the BoJ’s Kuroda, will continue to talk down their currencies, and may hint of the possibility of more stimulus.
Historically, Jackson Hole has occasionally moved markets substantially, though not reliably, and the direction has not been consistently hawkish or dovish. Moreover, even when Jackson Hole does move the market, the effect is not reliably long-lasting. Given that most central bankers are relatively content with their positioning and current communications, this meeting seems less likely to excite markets than several past iterations. Much of the value of Jackson Hole lies in the intersection between academic research and central banking policy, and frequently the importance of papers presented at the conference take some time before becoming apparent or relevant.