Neo Ralefeta

Neo Ralefeta

Treasury Structuring

The Kansas City Shuffle

Leading up into last week, and all of last week, you may have heard a lot of talk and hype around a Jackson Hole Symposium that took place in the US.

But what is the Jackson Hole Symposium exactly, and why does it matter?

The Jackson Hole Symposium (conference) is a meeting that is held annually, hosted by the chairperson of the Federal Reserve of Kansas City, and takes place in a resort in a valley of that name in Wyoming.

This conference has been running since 1978 when the Kansas City Fed first organised it. The location of the conference was later moved to Jackson Hole in Wyoming and has been hosted there since (bar the last two years which were held online due to the Covid pandemic).

The symposium is one of the world’s biggest monetary policy conferences attended by central bankers, finance ministers, academics and financial market participants from around the world.

Each year, the conference has a specific theme, depending on prevailing market conditions, and has a history of important policy decisions that have great implications for the world market. And although the star of the show is expected to be the chairperson of the US Fed, other prominent leaders tend to make announcements about plans for their respective economies.

Here are the themes and highlights that came from previous symposiums since the Global Financial Crisis (GFC):

2008 – Maintaining Stability in a changing financial system
2009 – Financial Stability and Macroeconomic Policy
2010 – Macroeconomic Challenges: The decade ahead
2011 – Achieving Maximum Long-Run Growth
2012 – The Changing Policy Landscape
2013 – Global Dimensions of Unconventional Monetary Policy
2014 – Re-Evaluating Labor Market Dynamics
2015 – Inflation Dynamics and Monetary Policy
2016 – Designing Resilient Monetary Policy Framework for the Future
2017 – Fostering a Dynamic Global Economy
2018 – Changing Market Structures and Implications for Monetary Policy
2019 – Challenges for Monetary policy
2020 – Navigating the Decade Ahead: Implications for Monetary Policy

Notable statements that came out of these were in 2012, when Ben Bernanke (then Chairperson of the US Fed) announced the third tranche of quantitative easing (QE3), which was later formalized at the September FOMC. And in 2014, Mario Draghi (then president of the European Central Bank and now Prime Minister Italy) warned of falling inflation. That was the precursor of QE in Europe.

This year the theme is ‘Macroeconomic Policy in an Uneven Economy’ and participants discussed how the pandemic has created an environment of stagflation (increasing inflation with stagnant growth prospects).

Fed chairman Jerome Powell mentioned that the purchasing of assets could be slowed down from this year (currently at $120bn per month) but added that there will not be any rush to increase interest rates.

Although a timeline for tapering was not communicated, Federal Reserve presidents of Atlanta and Dallas mentioned that they would prefer tapering to start as soon as possible so that the ‘economy can stand on its own’.

Since then, we’ve seen the rand and rand-denominated bonds strengthen on increased global market risk taking.

Some of you may hear the name Kansas City, and be reminded of the Kansas City Shuffle. For those of you who don’t know the term, the Kansas City Shuffle is when you know someone is going to trick you but you don’t exactly know when and how.

So the person may make you look right and then hit you from the left. If you’ve ever watched Lucky Number Slevin, you’ll know exactly what I’m talking about.

That analogy seems fitting considering the Fed’s unrelenting dovish stances when it comes to interest rate expectations and tapering. We know rates eventually have to increase to a normal level, but we really don’t know when these increases are going to start coming through and how rapidly they are going to come at us.