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It has been 20 years since central bankers focused on labor market issues at the Federal Reserve’s annual economic symposium at Jackson Hole, Wyoming, a point Esther George, the host and President of the Federal Reserve Bank of Kansas City, noted Thursday as she kicked off the conference on a cold and rainy evening in the mountains.
The dilemma back then was structural unemployment, particularly in Europe. Then-Fed Chairman Alan Greenspan opened the two-day conference with a brief review of the academic papers being presented by the likes of Paul Krugman, then a professor at the Massachusetts Institute of Technology, and James Heckman of the University of Chicago, both future Nobel Prize winners.
It is worth remembering that Fed chairmen don’t always deliver big policy addresses at Jackson Hole. Investors have become accustomed to such addresses in the past few years of economic crisis, but it isn’t mandatory.
Mr. Greenspan was brief and academic. But he did include this warning: Central bankers should be wary about using low interest rates as medicine for structural labor market problems not responsive to monetary policy. “Any tendency to seek a bit of macro policy relief by pushing the outer limits of monetary policy risks longer term financial instability,” he warned, hauntingly.
This year’s Jackson Hole papers delve into whether labor markets have lost their dynamism. The challenge for central bankers in the room is deciding how much more they’re prepared to do about it.
-By Jon Hilsenrath
MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD
Central Bankers Wrestle With Easy Money Amid Uneven Global Recovery. Central bankers gathering in Jackson Hole, Wyo. this week confront a global economy that has once again disappointed, leaving them reluctant in some places and unable in others to turn off spigots of easy money employed since 2008 to boost growth. Federal Reserve officials—puzzled by the combination of slow U.S. economic growth and robust hiring—are waiting for more evidence that strong job gains will continue before they start raising short-term interest rates.
Wish You Were in Jackson Hole? Follow all the WSJ’s coverage through the weekend here.
Despite Retreat, Fed to Keep Bond Buys in Policy Toolkit. The Fed is on track to end its historic bond-buying program in October, but that won’t mean the disappearance of a central banking tool that proved controversial inside and outside the institution. Though deeply divisive on Wall Street and in Congress and academia, many top Fed officials believe their bond buying helped stabilize markets during the crisis and support economic growth afterward. This means the policy — known to some as quantitative easing or QE — could be dusted off in the future in the event of another economic calamity.
Private Bankers Notably Absent From Jackson Hole Conference This Year. Wall Street’s big investment banks are out and the AFL-CIO is in this year at the Fed’s Jackson Hole Symposium. A long list of global central bankers are also in attendance, including European Central Bank President Mario Draghi, Bank of Japan Gov. Haruhiko Kuroda, Augustín Carstens of the Bank of Mexico, Alexandre Tombini from Brazil and Benjamin Broadbent, deputy governor at the Bank of England.
Five Questions for Participants at Fed’s Jackson Hole Conference. What will be the hot topics on the sidelines of the closely watched conference? Here are some of the questions we plan to ask. Tweet your questions to @WSJCentralBanks and use the hashtag #JacksonHole. Check our Real Time Economics blog this weekend for some answers.
Banks Told Fed Ahead of July Meeting They Expected 3Q 2015 Rate Hike. Wall Street’s biggest banks told the Fed ahead of its July policy meeting that they generally agreed the central bank wouldn’t raise short-term interest rates until the third quarter of next year. The view shows that many in the financial sector are on board with monetary policy views held by most central bankers.
Fed’s George Says Easy-Money Policies Should End Sooner Rather Than Later. Kansas City Fed President Esther George said in an interview on Fox Business Network Thursday it is time for the central bank to think seriously about raising short-term interest rates from near zero.
Fed’s Williams Still Sees Rate Hikes Some Time Next Year. San Francisco Fed President John Williams told CNBC he still expects the first central bank interest rate increase will come about a year down the road. “A rate hike sometime in the middle of 2015 seems reasonable” right now based on the current outlook for the economy, Mr. Williams said in the interview Thursday.
Fed’s Plosser Warns Central Bank Policy Is Increasingly Risky. Philadelphia Fed President Charles Plosser told CNBC in an interview Thursday the U.S. central bank’s expectation of holding interest rates near zero well into the future is “risky policy.”
India’s Central Bank Says Economic Outlook Improving. India’s central bank said Thursday the outlook for Asia’s third-largest economy is improving, but warned that monetary tightening in the U.S. could destabilize global financial markets and hurt emerging economies.
Polish Rate Setters Wary of Outlook Amid Ukraine Conflict. Poland’s rate setters were worried about increased uncertainty surrounding the country’s future inflation and growth, and the impact on the country’s economy from the Russia-Ukraine conflict, minutes from the rate panel’s July sitting showed Thursday.
Czech Central Banker Backs Keeping Koruna Weak to Early 2016. Jiri Rusnok, the newest policy maker at the Czech central bank s said in an interview with The Wall Street Journal he backs the bank’s policy of keeping the country’s exchange rate weak at least through early 2016 to protect a fragile recovery, and sees no need to devalue the koruna further against the euro.
South Africa Central Bank May Not Impose Losses on Bank Wind-down Creditors. Rather, the South African Reserve Bank will deal with possible bank failuresin the continent’s most sophisticated financial market depending on the “merits” of each case, said Hlengani Mathebula, head of strategy and communications, said Thursday, responding to written questions following the collapse of a big local lender.
Argentina’s Central Bank Lets Peso Slide to Fresh Low. The Argentine peso hit a record low against the U.S. dollar on Thursday after the central bank allowed the currency to post its biggest one-day slide since January’s devaluation. A debt default last month and a controversial government plan to pay its international bonds locally have piled pressure on the beleaguered peso.
Thursday’s report on existing-home sales offered the clearest evidence yet that the U.S. housing market is moving out of the emergency ward and into a rehab facility. The share of distressed home sales in July fell to 9% of all sales, the lowest level since the trade group’s tally began in October 2008.
-Fed Chairwoman Yellen speaks in Jackson Hole, Wyo., at 10 a.m. EDT
-ECB President Draghi speaks in Jackson Hole, Wyo., at 2:30 p.m. EDT
-BOJ Gov. Kuroda, Central Bank of Brazil Gov. Tombini and BOE’s Broadbent speak on a panel in Jackson Hole, Wyo., at 12:25 p.m. EDT
The Declining U.S. Reliance on Foreign Investors. The U.S. borrowed an average of $600 billion a year from foreign investors from 2000 to 2008. “Since 2011, however, borrowing has trended down and fell to 2.4 percent of GDP in 2013, the smallest amount as a share of GDP since 1997,” Thomas Klitgaard and Preston Mui write on the New York Fed’s Liberty Street Economics blog. “A reduced dependency on foreign funds can be viewed as a favorable development to the extent that it reflects an improvement in the fiscal balance to a more easily sustainable level. However, it also reflects the lackluster recovery in residential investment, which is one reason the economy has yet to get back to its full operating potential.”
Macroprudential Policies Work Better During Booms than Busts—IMF. Macroprudential policies — those financial speed bumps popular in smaller economies seeking to limit the destructive impact of rapid foreign fund flows – work better during booms than during busts, according to researchers at the International Monetary Fund. “We confirm that many help reduce risks during upswings,” Fund staff-members Stijn Claesens, Swati R. Ghosh and Roxana Mihet wrote in a working paper published Tuesday. “However, even tools which help build buffers in good times do not help to provide cushions that alleviate crunches during downswings.”
The topic of this year’s Jackson Hole conference, “Re-Evaluating Labor Market Dynamics,” may appear deliberately dull, “as if intended to keep financial markets in a summer slumber,” Ralph Atkins writes for the Financial Times. “Yet, like James Bond film titles, Jackson Hole summits have a habit of capturing the zeitgeist.”
ECB President Mario Draghi should use his address Friday at the Jackson Hole Fed conference to “say what he will do to save the economy,” Richard Portes writes in the Financial Times. “You cannot conjure an economic recovery by summoning the confidence fairy,” he writes. “There is no substitute for pragmatic, non-ideological policies that accept and confront the data—which tel us the current policies are failing.”
Paul Krugman writes in the New York Times that the Fed’s hawks have been warning wrongly about inflation for years. “The last people you want to ask about appropriate policy are people who have been warning about inflation year after year. Not only have they been consistently wrong, they’ve staked out a position that, whether they know it or not, is essentially political rather than based on analysis. They should be listened to politely — good manners are always a virtue — then ignored.”
– The Fed could raise interest rates as early as the first half of 2015 if the labor market continues to improve at the current solid clip, former Fed vice chairman Donald Kohn told The Nikkei in an interview.
– New applications for U.S. unemployment benefits fell last week to levels that haven’t been seen regularly in eight years, the latest sign of an improving labor market.
– U.S factory activity this month is expanding strongly, with production surging, according to an early reading of August business conditions released Thursday.
– An unexpected deterioration in the U.K.’s public finances in July suggests the government could face an even greater challenge in meeting its borrowing targets for the year despite the strong economic recovery.
– Mexican economic growth accelerated in the second quarter, expanding from the first quarter and from a year before as export demand and private consumption improved.
-India’s finance ministry has selected economist Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics, to be the chief economic adviser to the finance ministry, two officials said Friday.
-Who needs Jackson Hole? Former Fed chairman Ben Bernanke will speak Sunday to the National Association of Chain Drug Stores’ Total Store Expo in Boston.
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