Some of the world’s top central bankers, along with our own Federal Reserve leadership, just met at an annual summit where they discussed the global economy. Held this year in Jackson Hole, Wyoming and hosted by the Kansas City Federal Reserve, the conference brings together the Federal Reserve Chairwoman, Janet Yellen and the European Central Bank’s (ECB) president, Mario Draghi, along with many other economists and central bankers.

This year’s theme; “Fostering a Dynamic Global Economy,” was designed to allow the central banks to both meet and express some views publicly that would provide insights into their thinking.

In a speech, Draghi indicated that additional monetary stimulus was required in Europe. He also did not mention anything about the euro being too strong against the dollar, which invited currency speculators to be bullish on the currency that day.

After his remarks, there was an immediate effect on the currency markets and the euro increased against the dollar, reaching the highest level since January of 2015.

Leave Regulations Alone

A point of contention, expressed by both Yellen and Draghi, in their speeches related to proposed changes to credit availability and regulations. Precipitating the financial crisis, created by the real estate bubble in 2008, there had been laws enacted that challenged bank’s ability to underwrite credit responsibly, leading to many defaults and a tightening of credit.

Yellen argued that the more restrictive credit measures were a good thing for financial stability and warned against any attempts at changing regulations that would loosen credit and dismantle any of the post-recession regulations. Draghi reflected similar concerns in his remarks. Also, the two central bank heads were not in favor of any withdrawals from international trade agreements.
In contrast to the broader roll backs of regulations, Yellen did say that a lessening of regulations on smaller banks might be appropriate.

In the context of both leader’s speeches, the topic of monetary policy was mostly absent, a break from the symposiums of the past. The fact that the unemployment rate is at a 16-year low, and inflation has not emerged as a concern, have both contributed to an environment where further rate increases are not the Fed’s primary focus.

Draghi also spoke about the growing interest in more protectionist policies, which he criticized. President Trump has pointed out the enormous trade deficit between the U.S. and China and the need for fairer trade between the two countries. Tariffs on goods manufactured in China and Mexico were mentioned during the campaign.

The European Central Bank will be eventually discontinuing its quantitative easing program; something the American Federal Reserve has already done. The ECB had started its program in 2015, reflecting the strategy employed by the U.S. central bank. The Fed has a $4.5 trillion balance sheet of mortgages and treasuries that needs to be reduced. The ECB had been buying approximately $71 billion in bonds monthly in its program.

The news out of the summit provided few clues for investors or money managers who were hoping for more useful hints as to the Fed’s current thinking and future inclinations.

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