The theme of this year’s annual economic symposium in Jackson Hole is “Fostering a Dynamic Global Economy”. This seems like a particularly tall order as global protectionism has increasingly reared its head over the past year. On the other hand, there is increasing evidence of synchronization of global growth and certainly of the coincidence of certain themes globally – such as low inflation, increased central bank intervention (and dovishness) and anemic growth levels. The fact that we are hovering around the 10th anniversary of the great financial crisis should also spark some reflection about the dangers of revisionism and the short nature of memories.
This is particularly acute in the US, where the impending end of Janet Yellen’s term coincides with a push (by the Republican administration) to rein in regulations on financial institutions. This was a key theme of Janet Yellen’s speech this morning – an urging not to forget the devastation wrought by the 2007-2009 meltdown and a defense of the post-crisis regulations that were put in place. She claimed that regulatory changes had not unduly limited credit availability or growth – and evidence would bear this out. While credit expansion was initially timid, and banks continue to opt out of certain lending activities – other players have entered to fill the vacuum, and we are again witnessing plentiful credit availability, married with lighter covenant protection and tighter spreads.
Growth has been anemic – among the most anemic growth rates of any recovery period. This, similarly, is unlikely to be due to the protracted nature of the recovery, the change in the employment backdrop and a cautious spending environment, than regulation per se.
The overriding theme of caution cheered markets today, as it suggested that the Fed would be more reticent regarding rate rises which still exist as an overhang over market sentiment.
The next “act” of Draghi’s speech is awaited with a little less excitement, as he is broadly forecast to not be about to surprise.