Yellen and Draghi Speeches to Highlight Jackson Hole Conference

By Nick Timiraos Features Dow Jones Newswires

Central bankers and economists from around the world will gather in the mountain resort of Jackson Hole, Wyo., beginning Thursday for the Federal Reserve Bank of Kansas City's annual economic symposium.

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The theme of this year's conference, "Fostering a Dynamic Global Economy, " highlights the challenges of boosting economic growth during an expansion that has been marked by poor productivity gains, rising protectionism and demands for greater fiscal austerity.

The main events for the conference will be speeches on Friday by Federal Reserve Chairwoman Janet Yellen and European Central Bank President Mario Draghi. Both the Fed and the ECB have been moving gingerly toward removing the extraordinary stimulus unfurled during the financial crisis -- including with major announcements at the annual Fed conference over the past decade.

Here's what to watch for during the conference, which begins Thursday evening and wraps Saturday afternoon.

The ECB Taper

At a luncheon presentation at the conference in 2014, Mr. Draghi promised to use "all the available instruments needed" to prevent a downdraft in inflation, setting the stage for a government-bond purchase program that followed in the Fed's footsteps. Analysts expect Mr. Draghi to lay out the case to start reducing the asset purchases some time next year, though he is expected to proceed cautiously after policy makers last month indicated concerns over the strengthening of the euro in anticipation of the tapering.

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Financial Regulation

Ms. Yellen's speech on financial stability will mark nearly 10 years since the beginning of the 2007-09 financial crisis. The Trump administration has signaled its desire to roll back the postcrisis financial regulatory architecture that the Fed has helped establish. Several Fed officials have cautioned against paring back rules too hastily.

Ms. Yellen in testimony last month highlighted areas that could be ripe for changes while also defending major elements of the recent overhauls, including stronger capital and stress-testing standards for large banks. "I wouldn't be in favor of reducing capital for the most systemic banks, " she told lawmakers in July, referring to banks so big their failure could destabilize the financial system.

Financial Conditions

Ms. Yellen's speech also could provide an opportunity for her to defend the basic architecture of the postcrisis system given new concerns over potential instability. At the Fed's last meeting, staff economists noted increased risks from rising asset valuations, describing them as "elevated" instead of "notable."

One question is how far Ms. Yellen might go -- if she goes there at all -- to address whether easier financial conditions might warrant higher interest rates to damp potential excesses. This question could be particularly relevant given the Fed's current dilemma over a softening in inflation that has prompted more Fed officials to urge greater patience in raising rates. In 2011, Ms. Yellen said the use of interest rates to address financial imbalances "should generally remain a last resort," though in 2014 she conceded "an adjustment in monetary policy may be appropriate" at times to address financial stability risks.

The Lowflation Dilemma

Fed officials initially dismissed weak inflation readings this spring as largely due to one-off factors, but subsequent readings also have shown softness, suggesting inflation isn't picking up despite continued tightening of the labor market. The minutes of the July Fed meeting show a more pronounced debate over the inflation puzzle and the implications it could have for whether officials raise interest rates one more time this year, as they have tentatively planned. While it isn't part of the official symposium program, the left-leaning activist group Fed Up will sponsor a discussion Thursday on whether the Fed should consider raising its 2% inflation target, as the group is advocating.

Succession Planning

The subject of who will be Fed leader next year isn't on the agenda, either. But the questions of whether Ms. Yellen will be asked to serve a second term by President Donald Trump, whether she would accept, and who might replace her if she doesn't return will hang over the confab. The succession speculation will increasingly weigh on markets because later this year it will grow harder to determine the path of monetary policy without clarity on who will lead the Fed.

Presidents have tended to make their selection in the late summer or early fall. President Barack Obama announced Ms. Yellen as his nominee in October 2013, and announced he would nominate Ben Bernanke to a second term in 2009 just days after the Jackson Hole symposium. President George W. Bush announced Mr. Bernanke's nomination in October 2005.

Mr. Trump has said he is considering asking Ms. Yellen to serve a second term as well as potentially selecting his economic policy director, Gary Cohn, to become Fed chairman.

Write to Nick Timiraos at nick.timiraos@wsj.com

(END) Dow Jones Newswires

August 24, 2017 05:44 ET (09:44 GMT)