All eyes on Jackson Hole

This is an audio transcript of the FT News Briefing podcast episode: ‘All eyes on Jackson Hole’

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Marc Filippino
Good morning from the Financial Times. Today is Wednesday, August 23rd, and this is your FT News Briefing.

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We will talk more about the state of Wyoming this week than we do pretty much at any other time during the year because it is time for the Jackson Hole economics symposium. Meanwhile, global stocks have taken a punch to the gut this month. And China is being cautious with economic stimulus despite its struggling economy. We’ll take a look at why. I’m Marc Filippino, and here’s the news you need to start your day.

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The world’s leading central bankers and top economists are descending on Jackson Hole this week for their annual symposium. All eyes, of course, will be on Federal Reserve chair Jay Powell, whose speech on Friday is the most highly anticipated event of the gathering. Here to help us decipher what’s next for the central bank is the FT’s US economics editor, Colby Smith. Hi, Colby.

Colby Smith
Hi, Marc.

Marc Filippino
So why all the anticipation for the speech, Colby? 

Colby Smith
So the Fed chair’s speech is always the kind of main event of Jackson Hole. It is the Fed’s annual conference. But I think at this moment people are really looking for signals from the Fed chair at a really kind of tenuous moment for the global economy. You have growth slowing down around the world, especially out of China. You have inflation, while it’s receded from its peak, still elevated. And there’s some concern about instability, especially in light of the banking stress that we saw earlier this year. And now what the Fed ends up doing in terms of its monetary policy, that has vast global ramifications.

Marc Filippino
Yeah, Colby. So what sort of things will Powell and the Fed have to consider going into the symposium and during his speech?

Colby Smith
So right now, the kind of tension is that they’ve done so much in terms of raising interest rates over the last year and a half or so. And the question is: how patient can they be at this stage now that the benchmark interest rate is well above 5 per cent at this point? A lot of the changes to monetary policy, they take quite a lot of time to filter through fully to the economy and actually have an impact. So ultimately, that’s kind of one open-ended question. The second one is whether or not some of the resurgence in growth that we’ve seen, at least in the US, whether that’s just a summer blip or the start of a more pronounced trend. So chair Powell is tasked in his Jackson Hole speech with navigating all of these different variables to a certain extent without overcommitting the Fed in any one direction. Either, you know, suggesting the need for more tightening or declaring victory and saying that they’ve done all they need to do.

Marc Filippino
Given that it sounds like Powell’s not gonna make any hard or fast indication of where the Fed is heading, what are markets looking out for here?

Colby Smith
So I think important context going into this meeting is the fact that we’ve seen this really sharp rise in Treasury yields that’s led to tighter financial conditions. It’s really been provoked by a resetting of expectations about how quickly the Fed is going to cut interest rates next year. So I think, you know, it’s fair to say that it’s a fraught time in some sense for markets. Stock markets are under pressure as well. But I think that there are some hints in the way in which Powell frames his speech on Friday that will give market participants a real sense of how worrisome the Fed thinks the firming up of growth over the last couple of weeks really is, how far along we are in the disinflation process and how kind of ready the Fed is to do a little bit more if that is what ends up being necessary.

Marc Filippino
Colby Smith is the FT’s US economics editor. Thanks, Colby.

Colby Smith
Thank you.

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Marc Filippino
This August is turning out to be a terrible month for stocks. Global equity markets have lost about $3tn in value this month, according to data from Refinitiv. That’s if you look at the S&P 500, Europe’s Stoxx 600 and China’s CSI 300 indices. The MSCI index of global stocks is on course for its worst month since last September. Now there are a few reasons for the drop. One that we’ve already talked about is higher interest rates, especially in the US and in Europe. Another reason that we’ll talk about next is the Chinese economy. China’s struggling to recover from its pandemic lockdowns. And there are big concerns over the country’s real estate sector.

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Despite a lot of gloomy economic data, China made only small cuts to a benchmark lending rate this week. Markets had been expecting more economic stimulus so that China can meet its growth target of 5 per cent this year. So what is the reason for China’s cautious approach?

Thomas Hale
Probably the most persuasive theory out there is that a further cut in rates would put pressure on bank net interest margins — the difference between the money they make on their loans and the money they pay out on deposits — and therefore put pressure on bank profits.

Marc Filippino
That’s Tom Hale, the FT’s Shanghai correspondent.

Thomas Hale
And the People’s Bank of China did warn over the need for banks to be making reasonable profits last week. So that would be one persuasive explanation of why this surprise decision was made. I think it’s important to bear in mind that the banking sector in China is still heavily state-owned. That makes it sometimes less clear-cut as to exactly what’s going on inside it. But it also means that if things were to go wrong with bank balance sheets, you know, we’re ultimately dealing with very large state-owned enterprises here rather than private sector companies.

Marc Filippino
Tom says that based on what we saw this week, it seems that China isn’t doing enough to meet its growth target for 2023.

Thomas Hale
There’s a sense that they’re, if not doing the minimum, doing less than some people might want them to do, or some investors or some market participants might want them to do to support the economy. And also that they have maybe very deeply thought-out concerns over the negative effects of any stimulus they might embark upon that might help in the short term, but could entrench some of these deep-seated problems in the medium and longer term.

Marc Filippino
But there are options for stimulus. It’s just a matter of pulling the trigger.

Thomas Hale
Certainly, there are measures the government could take that would have a very clear impact in the short term. But the government’s priorities may not be necessarily for short-term performance, but rather to avoid entrenching risks that they’ve been talking about for many years now. So the Chinese government has obviously a huge amount of control over its currency and over its monetary system. I think, again, policymakers would be very concerned about the risks associated with a massive increase in, say, the money supply, especially related to inflation. I think Beijing has observed inflation in a lot of other major economies after they lifted Covid restrictions, and they have been quite eager to avoid that type of inflation, which obviously has the potential to be very destabilising in any economy.

Marc Filippino
Tom Hale is the FT’s Shanghai correspondent.

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The 2024 US presidential election gets started in earnest tonight. Republican candidates will get a national televised stage.

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This week is one of the biggest weeks for those vying for the Oval Office. It’s the first primary debate — the candidates’ first opportunity to show all of America what they’re really made of.

Marc Filippino
Eight candidates will face off in Milwaukee, Wisconsin, including former vice-president Mike Pence, Florida’s governor Ron DeSantis, and the former governor of New Jersey, Chris Christie.

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It’s the moments that make a candidate and the moments that break a candidate often.

Marc Filippino
But there will be one notable absence.

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Former president Trump has confirmed that he will not be attending the upcoming Republican primary debates.

Marc Filippino
Instead, an interview with Donald Trump, who’s the Republican frontrunner, and the former Fox News host Tucker Carlson will publish online tonight.

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You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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