Fed Chair Janet Yellen’s Speech at the Jackson Hole Conference

IN A NUTSHELL: “Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.

All week, we have waited for the talk that Fed Chair Janet Yellen would give at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming. This has become “THE” monetary policy meeting as Fed chairs have, in the past, sometimes signaled changes in policy. If you were hoping that would happen this year, forgetaboutit.

Yes, the Fed Chair did note that economic conditions have improved recently, which is a surprise to only those who have been stuck on Mars with Matt Damon. And yes, there is now a decidedly more hawkish (i.e., rate hike biased) view of monetary policy coming out the Fed. But that has happened before when conditions had improved. However, the sudden appearance of any issue of any kind sidetracked the Fed.

Indeed, Chair Yellen did note: “Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee’s outlook.” So, if we get a softer than expected jobs report or weaker consumption numbers or whatever before the September 20-21 FOMC meeting, the Committee could or will likely do nothing.

The bulk of the comments centered on monetary policy tools. While it was an interesting discussion, it could only be appreciated by monetary policy geeks.

So, what did we learn? There is a possibility that the Fed could raise rates in September, but only if the data are “confirm the Fed’s outlook”, whatever that is today or next month. The only way I see a rate hike next month – and I have been a major proponent of the Fed raising rates for the past eighteen months – is if the economic data are so strong the Fed has no choice. I hope that actually turns out to be the case, as it would indicate the economy is accelerating, the labor market is strong and wages and spending are rising solidly. If you are holding your breath, keep an oxygen tank near by.