This year’s Jackson Hole summit has an ‘end of an era feel’ to it, as Janet Yellen sets to deliver possibly her final speech as central bank chief.
Yellen Takes the Stage
Janet Yellen is set to speak on financial stability at 10:00 a.m. ET. Although the speech isn’t expected to generate much news, it will spark plenty of discussion concerning Yellen’s future at the all-powerful Fed. With Yellen’s four-year term set to expire in February, there’s plenty of speculation that President Donald Trump is looking to replace her.
Gary Cohn is reportedly the top candidate to take the chair. The current director of the National Economic Council is said to offer a less technocratic approach to monetary policy. Of course, the main concern is that a new chairperson would fundamentally alter the way the Fed does policy. This is a major concern for investors, who have only recently begun to see through the central bank’s opaque box of decision-making.
When Yellen Took the Chair
Yellen took over as head of the Federal Reserve in 2014, replacing Ben Bernanke. Under Yellen, the Fed ended its massive bond-purchasing program and began the slow process of normalizing interest rates. But inflation remains below target and monetary policy conditions are looser today than they were when the Fed first hiked rates in 2015.
At the same time, unemployment has fallen to 17-year lows, as the economy continues to churn out new jobs at a steady pace. Wages are rising faster than inflation and the broader economy has not faced recession since 2009.
The Trump administration has fueled hopes of faster economic growth through a cocktail of policies that include tax cuts, deregulation and infrastructure spending. That optimism has been reflected in the price of equities, with the so-called Trump reflation trade igniting a fresh bull market on Wall Street. If the economy is set to grow as Trump says it will, there probably isn’t enough room at the top for a policy dove like Yellen.
But the Fed isn’t buying what Trump is selling – at least, not yet. The central bank has maintained a subdued outlook on economic growth over the next three years. This is unlikely to change next month when the Federal Open Market Committee (FOMC) reveals its latest projections.
The Trump administration’s first full budget assumes its policies will kickstart an era of growth not seen since 2005. Budget documents in May revealed expectations for 3% GDP growth in calendar year 2021.