For me, Robert Kaplan stole the show at Jackson Hole 2017
Neither Janet Yellen nor Mario Draghi acted out of character.
Both deflected comments away from monetary policy with Yellen focusing on why post-crisis regulations are still good and Draghi failed to take the opportunity to jawbone down the Euro, instead focusing on the risks of protectionism.
Short-term impact? USD and yields fell while the Euro stormed on with Draghi acting like a school teacher turning a blind eye to the naughty currency boys.
While this galah behaviour (the noisy fence sitting flip-flop behaviour I wrote about in the recent Winter edition of NextPerspective) was going on, the biggest dove of them all, Japan, underscored its commitment to ‘extremely accommodative monetary policy’ siting unsustainable economic growth.
But what was of most interest to me was Dallas Fed Chief Robert Kaplan’s comments (which I believe are bang on) about the anti-inflationary aspect of ‘structural’ technological disruption.
That is, more tech, less people, less jobs, lower wage pressures plus the double-whammy of cheaper prices for consumers.
I interpreted his view to be that this new ‘structural’ element when blended with price depressing ‘cyclical’ forces, namely the world being in capacity oversupply, is enabling stubbornly low inflation below the Fed’s target of 2%.
While Kaplan did not say that the Phillips Curve is no longer an appropriate model, he did say he would be spending time with economists and businesses on this new ‘structural’ force which was not around when the old economic models were constructed.
Music to my ears! Kaplan is bang-on. This thinking could move galahs to the hawk coop, but let's not get ahead of ourselves.
Kaplan is more concerned about where global economic growth will come from. He warned that growth in major economies with heavy gearing, such as China, would be challenging in the face of balance sheet deleveraging efforts. He also took an indirect but accurate swipe at the President’s anti-immigration and trade protectionist stance, which in his opinion will hamper growth.
Long term impact? Perhaps the world needs to get used to lower growth and new structural models which better explain millennial driven behaviour.
Monetary policy guidance? Perhaps not today, but stay tuned.