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Jackson Hole symposium: Market-watchers await central bank hints on QE rollbacks

 
 

It's Monday again, but August's anticipated bank holiday is rapidly approaching here in the U.K. Here's your guide to every Forex trader's most unmissable long weekend event. 

The annual Jackson Hole conference is about to take place in Wyoming between Aug 24-26. This year, the foreign exchange trading community awaits answers regarding how central banks will exit the quantitative easing (QE) programs adopted to keep the economy above water after the most recent global financial crisis.  

The event, founded by the Federal Reserve Bank of Kansas City in 1978, expects a number of high-profile participants this year. European Central Bank (ECB) president Mario Draghi will attend the symposium for the first time in three years and is scheduled to speak on the opening day. The last time Mr. Draghi was present, he announced the ECB's large-scale bond-buying investment aimed at saving the eurozone member countries. 

However, as the world economy has improved a decade later, there is pressure on central banks to retreat from the wide-ranging stimulus packages. At this year's conference, investors look for indications on how QE (which is largely about bond-buying and keeping interest rates low) will come to an end as the current form of monetary policy is, by many, considered tougher than necessary. 

The main central banks that global investors will keep an eye on at Jackson Hole is the ECB, the U.S. Federal Reserve and the Bank of England (BoE). The ECB spent £2.1 trillion on quantitative easing, the Fed £3.5 trillion and the BoE £435 billion.

While a number of central banks have signalled that the process of reducing their balance sheets will commence in the not-so-distant future, it remains uncertain when. Returning to normal could be difficult, with weak inflation and still-vulnerable economies. Adding further complexity, a QE exit of this caliber has never been executed before.

A week ahead of the conference, sources near Mr. Draghi disclosed that the ECB chief will avoid delivering a new monetary policy direction at this point. His address will take place on Friday, following the speech by Federal Reserve chair Janet Yellen. Ben Broadbent will represent the Bank of England at the gathering, however the Deputy Governor is not scheduled to speak in 2017. 

On Friday, Mr. Draghi is expected to reiterate the ECB's previous position, presented at the central bank's forum in the Portuguese city of Sintra in June. Back then, the ECB leader expressed confidence concerning the future of Europe and the single market currency, and stated that quantitative easing rollbacks will largely depend on the state of the economy and the financial market. However, any comment from Mr. Draghi that would indicate some direction on monetary policy, would in all probability be of interest to the foreign exchange trading community.  

Fed Chairwoman Janet Yellen and the other members of the Board of Governors have stated this summer that the American central bank will start to downsize its balance sheet within the near future. Some clarification on the timing of reductions could potentially be provided during the next Federal Open Market Committee meeting, scheduled for Sept. 19-20. 

On Thursday, EverythingFX wrote about the recently released Fed Minutes from the FOMC July meeting. To read more, click here.