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Fed's Powell Headlines Virtual Jackson Hole Economic Conference
August 26 2020 - 08:29PM
Dow Jones News

By Nick Timiraos

No need to pack bear spray this year.

The coronavirus has scrapped the Federal Reserve Bank of Kansas City's annual retreat of global central bankers in the mountains of Jackson Hole, Wyo. Instead, the event will be conducted online, viewable by the public via live stream, for the first time since the symposium began in 1978.

Fed Chairman Jerome Powell's keynote address on Thursday morning, at 9:10 a.m. Eastern time, is the main event. He is expected to reveal conclusions of the central bank's review of its monetary policy framework.

Officials have signaled they are ready to adopt a new approach of making up for periods of low inflation by seeking subsequent periods of higher inflation, and Mr. Powell's speech offers a natural venue to explain what the Fed is preparing to change and why. The practical effect is that it will be a long time before the Fed raises interest rates.

Mr. Powell announced the review in November 2018, animated by concerns that the inflation framework guiding the Fed's rate strategy for the last three decades needs to be updated for a world in which the biggest challenge isn't the runaway inflation of the 1970s but rather the difficulty of spurring faster growth when interest rates can't be cut. The problem of very low interest rates has bedeviled central bankers in Japan for the last two decades and in Europe for much of the last decade.

The primary vehicle for the Fed to formalize these changes will be to amend its statement of longer-run goals and policy strategy, which was first adopted in 2012 when the central bank established a 2% inflation goal. Inflation has generally run below the target, which has led officials to grow more concerned about periods of too little inflation.

The current shock is far more severe than any hypothetical downturn Fed officials had in mind when they initiated their review. Looming in the background of this year's conference is a troubling prospect.

While the Fed and other central banks have proven they can prevent financial panics by providing massive infusions of cash to keep markets from seizing up, their ability to spur a faster recovery is an open question. They face greater limits given the low level of interest rates, institutional constraints designed to limit explicit coordination with fiscal authorities and, in the U.S. for the moment, political disputes over the need and use for further government spending.

Thursday's session includes presentations of two academic papers, one examining slower rates of business formation and another looking at the long-term effects of behavioral changes resulting from the pandemic.

At 11:15 a.m. Eastern time, three central bankers will discuss crisis management during the recent virus shock: Philip Lane, chief economist at the European Central Bank; Bank of Canada Gov. Tiff Macklem and Tharman Shanmugaratnam, chairman of the Monetary Authority of Singapore.

Friday's session begins with a speech by Bank of England Gov. Andrew Bailey at 9:05 a.m. Eastern time, which will be followed by presentations of two more academic papers. One examines how economic agents form their expectations, and another looks at how economic uncertainty is likely to impede the recovery from the current downturn.

The second day concludes with a panel at 11 a.m. Eastern time on post-pandemic monetary policy and the prospect that interest rates can't be lowered because they are at their so-called effective lower bound. The panelists are Laurence Boone, chief economist at the Organization for Economic Cooperation and Development; Jordi Galí, an economist at the Universitat Pompeu Fabra in Barcelona; and Michael Woodford, an economist at Columbia University.

Write to Nick Timiraos at [e-mail]