Jackson Hole preview – prepare to be disappointed

Jackson Hole rolls around again

The Jackson Hole symposium is viewed as the ‘beginning of term’ for financial markets. After weeks of generally quiet markets, this get-together of global central bankers marks the resumption of normal activity for traders and investors. Coming as it does after a quieter period, the event has perhaps gained an importance that is ill-deserved.

Admittedly, there have been times when the meeting has really delivered on expectations. 2010 was a big one, when Ben Bernanke outlined a second round of quantitative easing. 2022 saw Jerome Powell deliver a hawkish shock that sent markets into a fresh spasm of selling that, ultimately, set up the huge rally of 2023 and 2024. 2024’s meeting allowed Powell to signal that a dovish move in rates was coming, cueing up the still-controversial September 2024 rate cut.

But, more often than not, Jackson Hole is a minor event. Now that Kevin Warsh is in charge at the Fed, that seems to be the setup for this year’s shindig as well.

Warsh stays tight-lipped

Kevin Warsh has unleashed something of a communication revolution at the world’s most important central bank. After years of forward guidance, policy speeches and extensive meeting summaries, the new chairman has moved to reduce the amount of talking and commentary issued by the Fed.

Forward guidance is out the window, the post-meeting statement is shorter and both his press conferences have seen him give vague answers that have left markets guessing. A change from this pattern would surprise markets, but would be firmly out of character from what we have seen so far.

Instead, the focus is on the committee. At the new boy’s first meeting in June, around half the committee expected to hike rates in 2026, while three regional Fed presidents dissented from the July decision, a remarkably high level in a committee noted for its desire to appear collegiate. Meanwhile, the hiking odds for September stand at 40%, though this also means a hold is viewed as a 60% chance. 

Markets would like clarity, but they may not get it

‘Markets hate uncertainty’, runs the old cliché. To an extent, this is true. Investors certainly hate it, despite being in a business where it is essentially the entire ball game. You can’t blame fund managers for wanting Kevin Warsh to appear this week and lay out the plan for the year – that’s just human nature. Who doesn’t want a nice clear roadmap for the next four months?

The situation has been complicated by Bessent’s decision to go rampaging through the US Treasury market in a bid to try and keep yields down. This ill-advised intervention is likely to be counterproductive, as Bessent’s old mentor Stanley Druckenmiller has noted in a Wall Street Journal op-ed. Kevin Warsh has been busily signalling that markets should decide yields – now his opposite number at the Treasury seems to think the government knows best. One of them will be proved wrong in due course.

Keep calm and carry on

The bottom line for investors is that Jackson Hole is a moment worth monitoring, but don’t expect too much from it. In years of watching markets, I have noticed that the events deemed most likely to move markets often do precisely the opposite. This week’s Jackson Hole symposium is likely to fall squarely into that category.