On the surface, the only thing the same about this year’s gathering of central bankers in Jackson Hole, Wy., compared to the momentous events of the last several, will be the vistas of the Grand Tetons and the Snake River Pale Ale served in the Blue Heron Lounge.
For the last six years, Federal Reserve Chairman Ben Bernanke has used his much-scrutinized annual talk at the economic symposium, sponsored by the Kansas City Fed, to signal the direction of his own thinking on the future of monetary policy; this year he isn’t making the trip at all.
For the last six years, the global financial system has seemed at risk of coming unglued at any moment, and the gathering was a chance for leading global central bankers, the first responders to the ever-evolving crisis, to compare notes and plot how they might respond. Now, some recent rumblings of trouble in key emerging markets notwithstanding, there is relative calm.
And for the last six years, it has been a single cast of characters guiding the world economy through this mega-crisis. Now, Jean-Claude Trichet, Mervyn King and Masaaki Shirakawa, until recently the central bankers of the Eurozone, Britain and Japan, have all exited stage left, and Bernanke looks almost certain to follow them when his term is up in January.
So this will be a different variety of Jackson Hole. It is not a moment for action. It is not even a moment for reminiscence; there is too much trouble remaining in the world for the central bankers to act as victorious conquerors over the forces of economic despair. The memory of the 2005 symposium is still fresh, the event where a series of speakers heaped such glorious praise on outgoing Fed chair Alan Greenspan and the financial system he helped create that the whole event was a ready metaphor for the hubris of the world’s economic policymakers.
Rather, now is the time for sober assessment. We’re now five years from the most intense phase of the financial crisis, and the imprint of the world’s central banks on the global economy is greater than ever.
The Federal Reserve had $800 billion on its balance sheet half a decade ago; now it is closing in on $4 trillion. The European Central Bank has pledged an open-ended backstop of the finances of the 17 nations that use the euro. The Bank of Japan is engaged in an effort to jolt the nation out of its long cycle of stagnation by doing whatever it takes to get inflation up.
My sense is that the hubris of 2005 has been replaced with a wary reluctance. In each case, the central bank is doing what it thinks must be done not out of supreme confidence it will work, but out of confidence that not acting would be even worse.
This next three days in Wyoming, then, will be about exploring what we know now about which of these strategies is helping and how much, what risks they’re creating in the process, and what the toolbox for central banks should look like in the years ahead.
The pre-crisis sense of how things worked, which has been called the “Jackson Hole Consensus” inasmuch as it evolved in no small part through formal sessions and hallway talk at this very conference, is clearly a thing of the past.
But what would the new Jackson Hole consensus look like? Is “quantitative easing,” the buying of bonds using newly created money, now going to be a routine part of the central banker’s toolkit? Is the 2 percent inflation target that central banks around the world have adopted over the last generation really the right way to generate stable economic growth and inflation? How should monetary policy interrelate with regulating financial institutions, particularly when looking at potential bubbles?
One thing that is sure is there will be no definitive answers to these questions to emerge from the next three days of economists thinking, talking, and hiking in the Grand Tetons (and, oh yeah, gossiping about who might be the next Fed chair). But it’s equally certain that those are among the big questions that the next generation of economic policymakers will spend their time at the helm of the global economy trying to answer.
Economic policy is the ultimate learning-by-doing job. And it’s amply clear that the Jackson Hole Consensus circa 2005 has proven to be inadequate to the job of producing a world of sustained prosperity. The question is what comes next. And that is the job that the men and women gathering in the shadow of the Grand Tetons have ahead of them.
Look for reports from the symposium on Wonkblog—both on the formal papers and proceedings and hallway chatter—through the weekend.