Jackson Hole: Draghi is expected to be the main attraction - ANZ

ECB President Mario Draghi is expected to be the main attraction at the Fed’s Jackson Hole Symposium on 24–27 August, according to analysts at ANZ.

Key Quotes

“Given that Draghi used this forum in 2014 to lay the groundwork for the ECB’s QE policy, there has been some speculation in markets that he may use this speech to advance ECB guidance on tapering and anticipated future policy normalisation. We are sceptical.”

“In May, the ECB upgraded its forward guidance and Draghi spoke in Sintra in June where he stressed the more balanced outlook for euro area growth and receding deflationary risks in his speech “Accompanying the economic recovery”.”

“Whilst the market responded to the more positive outlook for growth, that speech stressed the need for persistence in current monetary policies to achieve the ECB’s inflation target. It stressed the need to be prudent in how the ECB adjusts its parameters to improving economic conditions. Senior ECB officials have indicated that their preference is to communicate the ECB’s thinking on tapering later this year, which we think will be Q4, as they want to gather as much evidence as possible on how inflation is evolving. Core inflation has averaged 1.0% y/y so far in 2017 and wage growth remains subdued (1.5% y/y).”

“The euro area economy is turning the corner, but growth is still significantly dependent on the ECB’s extraordinary policy measures. The preference for prudence in communicating incremental policy steps and to avoid an unanticipated and potentially significant tightening in monetary conditions would argue against Draghi making any new policy announcements at Jackson Hole.”

“Fed Chair Yellen is also expected to speak at Jackson Hole. We expect her to reinforce the message given by New York Fed President Dudley earlier this week. He reminded the market that the Fed was still in play for another rate hike this year, something the market has been moving to discount in recent times in the wake of softer-than-expected inflation reads. Although price pressures are subdued, the growth pulse has been decent underpinned by firm household spending amid a solid labour market. In addition, concerns over financial stability are likely building as financial conditions continue to ease despite the tightening from the Fed.”