Recession? What recession? A calm returns to Jackson Hole
The mood at this year’s Jackson Hole Economic Symposium, the annual gathering of the world’s top central bankers, hosted by the Federal Reserve Bank of Kansas City, was noticeably more relaxed. The message resonating through the picturesque landscape? The worst appears to be behind us.
A shift towards stability
After a tumultuous period that saw the global economy oscillate between crises, there is a growing sense that we are entering an era of more predictable growth and manageable inflation. The prevailing view among central bankers is that the economic turbulence of recent years – marked by uncertainty and volatility – is finally receding.
Recalling the storms of the past
Reflecting on the past few years at Jackson Hole, the atmosphere has been dominated by worry and crisis control. In 2020, the summit, conducted virtually due to the pandemic, was clouded by fears of a potential global economic collapse. By 2021, inflation was on the rise, and the economic wounds inflicted by COVID-19 remained fresh. When officials gathered in person again in 2022, inflation had soared to concerning levels, further intensified by the ongoing conflict in Ukraine, prompting many to question whether economic instability was becoming a permanent state. By the 2023 meeting, central banks were wrestling with the consequences of aggressive interest rate increases, striving to rein in inflation while minimising economic damage.
A new consensus on the horizon
Today, however, the landscape looks different. The Federal Reserve (Fed), along with other central banks, is preparing to cut interest rates soon, signalling a shift from the aggressive tightening seen recently. With inflation nearing the two per cent target in many parts of the world, the likelihood of a recession in the near term seems low.
Veteran attendees of the summit, like former Fed Vice Chair Alan Blinder, note a shift in sentiment. “There have been times when the mood here was quite bleak,” Blinder said. “But now, overall, the global economy is in a much better place, and the U.S. economy is performing particularly well.”
Reality check: underlying risks persist
Despite the optimism at Jackson Hole, economists point to cautionary signs. The U.S. labour market has shown signs of softening, which raises questions about the resilience of the economic recovery. The effects of the high interest rates over the past year are still playing out, and the economic impacts may continue to be felt even as rates begin to drop. As Austan Goolsbee, President of the Federal Reserve Bank of Chicago, pointed out, the lag in monetary policy effects is a key concern. “We need to understand whether the economy is stabilising at full employment or if further cooling is inevitable,” Goolsbee remarked.
Balancing act: the path forward for central banks
The discussions at Jackson Hole highlighted that while inflation has subsided, there are still concerns about it flaring up again. European Central Bank Chief Economist Philip Lane emphasised the disinflation process is not yet guaranteed, and monetary policy may need to remain tight to keep inflation in check. “The journey back to target inflation is not over,” Lane noted, stressing the need for vigilance.
Conclusion: a cautious optimism
The overarching sentiment from Jackson Hole is one of cautious optimism. While the sense of perpetual crisis may have lifted, central bankers are not yet ready to declare a complete victory. They are acutely aware of the challenges, from potential geopolitical disruptions to the unpredictability of economic policies. As one observer noted, “The mood is hopeful, but there’s an understanding that many factors beyond the control of central banks could still shape the future.”
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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