- The Fed chair focused her speech on financial stability a decade after the start of the crisis.
- The ECB president defended open trade and said protectionism stems from concerns about fairness.
- Neither spoke about interest rates or bond purchases: the market was hoping for clues that did not come.
On 25 August 2017, at the economic symposium that the Federal Reserve Bank of Kansas City holds every year in Jackson Hole, Wyoming, the heads of the two major central banks spoke. Janet Yellen, chair of the Federal Reserve, delivered “Financial Stability a Decade after the Onset of the Crisis”. Mario Draghi, president of the ECB, spoke about sustaining openness in a dynamic global economy. The symposium brings together central bankers, academics and fund managers from around the world each year, hence its media weight.
Markets follow this forum closely because in other years it has served to signal monetary policy. This time the content was different: Yellen did not address current monetary policy or interest rates, and Draghi did not discuss the euro exchange rate or asset purchases, although he described global monetary policy as very expansionary.
Yellen’s message
The Fed chair reviewed the 2007-2009 financial crisis and the subsequent reforms on capital, liquidity, resolution of institutions, derivatives and supervision. She argued that the financial system is substantially safer today and that the core reforms have not unduly limited credit or growth. She conceded that some adjustments might be warranted, such as simplifying rules for small banks or the Volcker rule, and that more evaluation is needed.
For businesses and families, the reading is that the regulation that followed the crisis, with more demanding capital and liquidity requirements, has defenders at the highest level and only tweaks are being considered. That affects how banks lend, to whom and at what price, and the strength of the institutions where savings are deposited. For bank customers, stable regulation favours stronger institutions, although it can also mean somewhat tougher credit conditions and fees that reflect those compliance costs.
Draghi’s message
Draghi argued that raising productivity is essential for growth and that openness to trade and investment is one of its drivers. He observed that public concerns about fairness, safety and equality feed protectionism, and defended multilateral cooperation, especially regulatory convergence in global financial regulation, so that openness can be sustained. It is a relevant idea for Europe, whose companies export a large share of what they produce and whose economies are closely integrated with one another.
That message connects with the trade debates of the moment, such as the investigation the United States opened against China on 18 August. For exporting companies, open markets are a condition of their business; for families, the question is how to share the benefits of trade fairly, so that openness does not generate rejection.
What to watch
Jackson Hole speeches do not by themselves change rates or mortgages, but they help in understanding where central banks are heading. It is worth following the next ECB and Fed meetings and distinguishing between what is said at a symposium and what is decided in a monetary policy committee.
For a company with debt or international sales, it is worth reviewing scenarios: somewhat higher interest rates, a stronger or weaker euro and changes in bank regulation that affect the cost of credit. And for savers, the best response to a market waiting for clues is not to take decisions on the latest headline.
When central banks stay silent on rates, the message is in everything else: financial stability and openness.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
