When the Federal Reserve on Friday scrapped in-person plans for its Jackson Hole symposium, it sent a signal investors should heed.
“Due to the recently-elevated Covid-19 health risk level,” the Kansas City Federal Reserve Bank said in a statement on its website, its annual economic policy conference will convene virtually on Friday, August 27. The move comes as infections rise nationwide and after Teton County, Wyo., where dozens of central bankers, policymakers and economists normally gather for the event, changed its transmission risk level to “high.”
The Fed’s decision to cancel its own in-person event is representative of a broader pullback in economic activity as virus concerns mount. Fresh data from the Transportation Security Administration show a slowdown in travel, with the number of people passing through TSA checkpoints down 10% on Friday from a recent high in mid-July. Meanwhile, data from restaurant-booker OpenTable reflect a renewed decline in reservations. Economists at Oxford Economics say their recovery tracker, a mashup of about two dozen indicators, has stalled as consumers become more cautious and overall mobility declines.
The Fed’s decision is also a real-time reflection of how officials view the economy’s biggest wildcard. Since the pandemic’s onset, Federal Reserve Chairman Jerome Powell has said that the path of the economy will depend on the course of the virus.In his press conference last Wednesday, he said successive Covid waves have had diminishing economic impact, but he acknowledged the risk posed by the Delta variant and future mutations.
“As long as Covid is running loose out there, as long as there’s time and space for the development of new strains, no one’s really finally safe,” Powell said, noting that any pull back in activity, from indoor dining to school openings, may weigh on the economy. “We don’t have a strong sense of how that might work out, so we’ll just be monitoring it carefully,” he said.
The shift to a virtual symposium is having an effect, if small, on the local economy. Cory Carlson, regional director of marketing at the Four Seasons Resort and Residences in Jackson Hole, said his hotel has had a slew of cancellations due to the Fed’s change of plans. “This definitely has a short-term impact on the local economy,” he says, adding that the event typically brings a swarm of symposium attendees and journalists conducting interviews and broadcasting speeches. A desk worker at the Parkway Inn of Jackson Hole, meanwhile, said guests pulled reservations early last week as Covid cases swung higher.
At the same time,the change of plans gives investors a dovish clue ahead of Powell’s speech on Friday morning.
Investors and economists across Wall Street have for months had an eye toward the Jackson Hole summit for an update on the Fed’s plans to begin winding down the emergency bond-buying program it launched in response to the pandemic. Minutes released last week from the Fed’s July meeting showed officials started debating when and how to taper the $120 billion in monthly Treasury and mortgage-backed securities purchases, though officials were split on when to begin reducing those purchases and how aggressively they should do so.
It is now clear that in the weeks since the July policy meeting, officials have grown more skittish about the recovery. Central bankers already inclined to delay purchase reductions are likely to argue increasing infections and hospitalization rates warrant further patience, while those on the fence have a reason to join the dovish camp.Even Dallas Fed President Robert Kaplan–the first official to publicly say the Fed should start cutting asset purchases sooner than later–recently said he may change his view if the Delta variant stalls the economic recovery.
It’s hard to argue rising Covid cases aren’t already affecting the recovery when policy makers themselves are scrapping travel plans. Investors worried about an official September taper announcement should find some relief in the Fed’s choice to hold a virtual Jackson Hole–though the flipside is a bearish message, inadvertent or otherwise, on the state of the economy itself.