Janet Yellen At Jackson Hole: What To Watch For

All eyes will be on Jackson Hole, Wyoming, on Friday as Federal Reserve chair Janet Yellen delivers a speech at the annual Economic Symposium. Traders will be paying close attention to any indication from Yellen of whether or not a September rate hike could be on the table and what type of long-term plan the Fed has to normalize interest rates.

Goldman Sachs analyst Jan Hatzius believes that even if the Fed starts raising interest rates as soon as next month, it will not have time to get rates back to normal before the next U.S. economic downturn rolls around.

“Even if a downturn does not come for several years, it is unlikely that the FOMC will have room to lower the funds rate by 550bp, the average reduction seen in the last nine recessions,” Hatzius explains.

Goldman believes this troubling realization will likely be a popular topic of discussion at Jackson Hole, and Yellen may even address the issue herself.

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Bank of America analyst Michelle Meyer doesn’t expect Yellen to provide any definitive guidance about the date of the next interest rate hike. However, she does expect her to discuss the benefits of maintaining a stimulative policy environment.

“There is asymmetry to policy when so close to the zero bound – hiking too quickly could derail the economy, but going slowly will simply mean a risk of having to play catchup,” Meyer notes.

A Wall Street Journal poll earlier this month found that 71 percent of economists are expecting the next rate hike to come in December, while more than 17 percent believe it will come in September or November.