Jackson Hole, Policy Frameworks, and a December Hike? | Macrocast

  • Friday, August 19, 2016

Welcome to The Signal’s “Macrocast.” Each week, we provide analysis* and forecasting on the most important upcoming central bank communications.

Prattle scores

Federal Reserve
Forecast: Yellen to avoid market signalling; September possible, December likely
Analysis: Every year the Kansas City Fed holds its annual Economic Symposium in Jackson Hole, Wyoming. Although we don’t expect to see Janet Yellen in chest-waders casting for trout as Paul Volcker famously did, we do expect a number of headlines from the speeches on this year’s topic: Designing Resilient Monetary Policy Frameworks for the Future. Janet Yellen will undoubtedly be the event’s highlight, speaking at 11 AM Eastern on the 26th. This is her first speech in two months, and, although many hoped she would clarify her thoughts on the Fed’s rate path and the possibility of a September hike, the speech title “The Federal Reserve’s Monetary Policy Toolkit” suggests she will stick to the conference topic. It is highly likely that Yellen’s speech will echo a recent paper by John Williams (residual**0.13) and possibly last week’s speech by Jim Bullard (residual -0.15), yielding a nearly neutral sentiment score. That said, if Yellen chooses to insert a discussion about policy, she will likely echo the recent interview by Bill Dudley (residual 1.75) and speech by John Williams (residual 0.49), indicating a more gradual rate path…but still strongly signalling at least one hike before year end.

8.22.16 Fed Graph

European Central Bank
Forecast: Speech to signal slight hawkishness
Analysis: This week’s speech by Benoit Coeure is the first from the ECB since July. With the bank and Coeure trending upward (momentum 0.28 and 0.32 respectively), we expect it to be a somewhat hawkish communication.

Bank of Japan
Forecast: Likely to weakly signal further stimulus, eventually
Analysis: Speaking the same day as Coeure, the BOJ’s Kuroda will have a chance to explain last month’s lackluster stimulus and indicate whether more aggressive action is around the bend. The BOJ’s trend has dipped recently, but its momentum remains roughly neutral (0.07). This sentiment suggests that Kuroda will give a modestly dovish speech expressing willingness to act…but little to no interest in further stimulus.

Bank of Turkey
Forecast: Likely to hold rates
Analysis: In the only policy meeting of the week, the Bank of Turkey is likely to hold. The turmoil caused by the recent (failed) coup is dying down, and the bank’s momentum is on an upward swing. That being said, it’s likely the bank will emphasize its willingness to act, when necessary, to bolster the economy.

8.22.16 Table_Large

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* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as basis of evaluation for future communications. The scores are normalized around zero and range between -2 and 2, negative numbers indicating dovishness and positive numbers indicating hawkishness.

** The momentum is the average of the last ten residual scores. Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker. Raw scores represent the tone of a communication compared to the average of all communications.