The Agony of Victory at Jackson Hole
There’s an air or menace around Yellen’s speech next week at Jackson Hole. She may use it to respond to the existential challenge to economic forecasting mounted by Bullard, or the challenge to inflation-targeting put forward by Williams. But we don’t expect any grand reformulations of the Fed’s mission at Jackson Hole –even less do we expect any new or more credible than usual tip-off that another rate hike is on the horizon. With unemployment and inflation near mandate-consistent levels, why change the policy that got us there? Recent challenges to the Fed’s orthodoxy by its own participants only adds to the uncertainty that argues for staying the course or, if anything, easing policy from here. We strongly re-iterate our longstanding forecast that the Fed will not raise rates again until December at the very earliest, and very likely not even then.