Jackson Hole for Beginners

There is a lot of hype for the upcoming Jackson Hole meeting tomorrow, and it is probably time to review why this meeting is so important. As mentioned in yesterday’s WMU, growth is present in the US economy, but it is anaemic at best. Unemployment is hovering around 8.3% and refusing to move, while US Core CPI is signaling weak inflation pressure at 0.1% m/m. Current GDP growth is simply not providing the conditions necessary for unemployment to abate. This is the prime concern that has plagued the US for the last four years since the great crisis.


Now we are in the final months of the election, and both parties have clearly staked their preferred economic schools of thought, with the Democrats sticking with Keynesian principles while the Conservatives have shifted to an Austrian framework. Quantitative Easing goes against everything in the Austrian framework, which is why the current tenure of Ben Bernanke is a contentious one when you draw the political lines. While the Fed is supposed to be completely independent, the added political element is sure to make Bernanke’s decision a little more clouded.


It seems the markets have already priced-in another round of QE, which leaves currencies sitting in a very precarious position should Bernanke disappoint. Markets have a habit of building themselves up in anticipation only to be let down in the end. If there is no new solid information released by Bernanke regarding QE, markets are poised for a big selloff. Should it go the other way, broad-based USD weakness should be the name of the game.


Stay tuned in here as the story unfolds.