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Federal Reserve Chair Janet Yellen is scheduled to begin her speech in Jackson Hole economic symposium organized by Kansas City Federal Reserve, today at 14:00 GMT and the subject is Federal Reserve’s monetary policy toolkit. While she can deliver a wide-ranging speech, traders and investors will hunt for clues on next policy hike and try to assess what are the tools available to Fed, if another recession hits the U.S. economy.
Two of the most prominent policymakers and voters on policy this year, William Dudley and Stanley Fischer have indicated that the Fed might move as early as the next month. U.S. economic growth rate has been low but the economy has so far proved to be quite resilient, given the strength of the dollar and international risks such as Brexit or high financial market volatility to begin the year with. The volatility index, VIX has dropped to lowest level since 2014.
Not much of a surprise is expected from her today. The market is pricing that the speech would remain overall dovish, however, she is widely expected to leave the door open for a hike this year. A hard signal on the timing of a hike is unlikely. The market as of now is pricing 30 percent probability of a hike I September.
In recent times, central bankers all around the developed world have called for more aggressive fiscal support and economists have been citing the limitation of the monetary policies to boost growth and inflation further. It would be interesting to see her take with regard to central banks’ policy tool in the event of a recession.
Traders in many currency pairs have been waiting for Ms. Yellen’s speech such as the yen which has been hovering around key 100 level this month. Euro is also hovering around key resistance at 1.13 this month; even the pound has been trying to break key resistance against the dollar above 1.32 area; both Australian dollar and the New Zealand dollar has been testing key resistance around 0.765 and 0.73 area respectively. A dovish speech could prove decisive in breaking these levels.
