Summer Camp for Bankers
There’s not much going on in financial markets right now. Traders either are on vacation or are turning the upcoming Labor Day holiday into something more like a week. With nothing much else to report on, journalists and market-watchers are all focusing on one thing: a monetary policy conference where central bankers and academics can go whitewater rafting together.
The Jackson Hole Economic Policy Symposium is an annual conference hosted by the Federal Reserve Bank of Kansas City. This year’s conference starts today and Ben Bernanke, chairman of the Federal Reserve Board of Governors, is speaking on Friday.
The conference was first held in 1978 and moved to Jackson Hole, Wyoming, in 1982. The 1981 conference was in Vail, Colorado, and didn’t have the impact or attendance the Kansas City Fed was looking for. Hoping to get then Federal Reserve Chairman Paul Volcker to attend the next year’s conference, they moved it to Jackson Hole, which is known for its fly-fishing (the Fed chair was an avid fly-fisher). Although it is not the only local Federal Reserve conference, it is by far the most exclusive, and most important, meeting of central bankers and academics every year.
The conference draws central bank governors from all over the world, with a smattering of invited academics, private-sector economists, economics officials, senior Federal Reserve officials, and even some journalists, all of whom have to pay their own way.
Even within the Fed, Jackson Hole is a hard ticket. Joe Gagnon, now a fellow at the Peterson Institute for International Economics, worked at the Fed on and off for more than 20 years and only managed to attend the conference once, when everyone above him in his division had something else to do. When Gagnon showed up in Jackson Hole, with only two years of Fed experience under his belt, he said the staff of the Kansas City Fed were shocked that someone as junior as he managed to score a ticket and “they made sure that wouldn’t happen again.” The attendees are the cream of the crop of the central-banker world: “They are really going out of their way to get only the most senior people; they want the top guy,” Gagnon said.
The Fed chairman attends and gives an always widely anticipated speech. The big news ahead of this year’s conference is that the head of the European Central bank, Mario Draghi, will not be attending, which probably is the most-discussed non-attendance in the history of monetary-policy conferences. Just last year, Draghi’s predecessor at the ECB, Jean-Claude Trichet, was part of a panel discussion with the managing director of the International Monetary Fund, Christine Lagarde. In classic Jackson Hole style, these two chieftains of the world economy were joined on the panel by an academic, University of California economist Barry Eichengreen.
The economists who score an invitation are to academic economics as Ben Bernanke or Mario Draghi are to central banking. They’re typically a combination of economists with a particular expertise in that year’s topics—Susan Wachter, a housing economist at the University of Pennsylvania spoke at the 2007 conference, which focused on the housing market—and the superstars of the field. Paul Krugman and Larry Summers both commented on papers presented in 1988; Martin Feldstein, a Harvard economist and former chair of the Council of Economic Advisers in the Reagan administration, is a frequent attendee; former Bush CEA chair and current Romney adviser Gregory Mankiw presented a paper in 1995. The academics are invited to present research papers and take part in discussions of the papers that are then published by the Kansas City Fed.
The conference is famously rustic—it’s held in Grand Teton National Park, and the facilities are the bare-bones Jackson Lake Lodge, a series of two-story connected cabins that features none of the amenities you might expect some of the most powerful men and women in the world to insist on: no spa or even a gym. “You are definitely in the woods” said Wachter.
Befitting its location, the conference is half central banking symposium and half rural vacation weekend. The Fed chair gives an opening address, and then papers are presented and discussed. But then there’s the fun.
The afternoons are devoted to organized activities: fishing, rafting, boating, hiking, and just about anything else you can do in the Teton wilderness. “You can go to a lot of places for good wine, but where do you go for horse wrangling?” Wachter said.
It is this part of the conference, the informal, lightly planned and off-the-record portion of the weekend, which sets Jackson Hole apart. Raghuram Rajan, the former chief economist of the IMF and a finance professor at the University of Chicago, described the conference as “very informal” and says that while the formal discussions are closely tied to the paper being presented, “the crisis du jour is the subject of the conversations outside.”
Perhaps the most important parts of the conference are those outside conversations on the paths surrounding the Jackson Lake Lodge against the stunning backdrop of the Grand Tetons. Wachter describes the 2007 conference, which focused on the housing market, as the time when the eventual severity of the developing financial crisis began to set in for her. “I came in thinking that the world is OK that we’re not going to have a disaster, I went out thinking this is going to be disaster.”
Taking advantage of Wachter’s expertise in housing, senior central bank officials, including Mario Draghi, then the governor the Bank of Italy, that nation’s central bank, were pressing her for more insight into housing finance after she presented her paper, along with officials from the Federal Reserve. Rajan said “the best relationships are formed” outside the formal sessions, when central bankers, academics, and other policymakers have an informal, off-the-record forum to talk among each other.
Stefan Ingves, the governor of the Swedish Central Bank, said in a history of the conference published by the Kansas City Fed, “I meet these same people in different places, but here you take off the guardrails and start talking to each other.” In the case of conferences set against economic turmoil, as in 2007 and 2008, the conference can become a place where central bankers and economists come to a consensus about the problems facing the world economy and what to do about it. “This set of meetings really shapes thinking about policy. Some talk about a Washington consensus; I talk sometimes about the Jackson consensus,” Feldstein, the Harvard economist and former Reagan CEA chair, said in the Kansas City Fed’s history of the conference.
Occasionally, the Fed chairman makes big news at the conference, like in 2010 when Bernanke signaled that the Fed would start a round of quantitative easing, buying long-term Treasury bonds in an effort to boost the economy. Nothing like that is expected in this year’s Bernanke’s speech, titled “Monetary Policy Since the Crisis,” but with thunderstorms in the forecast, the world’s central bankers might be getting a big surprise.