Why is a meeting held in the mountains of Wyoming, USA, so important for the economy?

BarcelonaThe meeting of central bankers, academics, politicians, and businessmen in Jackson Hole – the mountain area of the state of Wyoming, in the United States – which begins this Thursday, marks the economic week and the start of the academic year. The summit, which lasts until Saturday, has an impact not only on the world's leading economy, but on the entire planet. The president of the Federal Reserve (the Fed) of the USA, the country's central bank, Kevin Warsh, who replaced Jerome Powell last May, is expected to give hints on Friday in his speech as host about his policy against inflation. In the time he has been in office, he has not yet clarified it. Despite assuring that his goal is for the general increase in prices to be 2%, far from the current level, he has not explained what path he will follow to achieve it. This has generated doubts among investors.

Why does what the Fed chairman says matter?

Warsh, a trusted confidant of the country's president, Donald Trump, faces a true test. Inflation, at 3.4% in the US in July, down from 3.5% the previous month but still far from the 2% target, should lead to interest rate hikes. This is exactly the opposite of what Trump wants, who already launched a major offensive against the previous Fed chairman, Jerome Powell, for this reason.

Furthermore, the bond market is in a delicate moment, dominated by sales, with 30-year US Treasury bonds yielding at levels not seen in two decades – just before the financial crisis. The interest on 10-year bonds, which set the rates for mortgages and other loans, is also rising. Investors fear price increases due to energy and other costs, and Washington's excessive deficit and debt, opting for sales. This has led the Treasury Secretary, Scott Bessent, to announce an increase in bond purchases to curb rising interest rates – the fall in bond prices increases their yield and, therefore, the cost for the administration – at a time when public debt has surpassed 40 trillion dollars.

Analysts interpreted this move by the Treasury as a sign that high yields are generating political unease, with the midterm elections on the horizon on November 3. Warsh's message is awaited because the combination of artificially low rates (due to Treasury purchases) and high inflation, without knowing the current Federal Reserve's prescription, is making markets nervous.

Why are there consequences for the global economy?

If it is considered that Warsh, who will have the next Fed meeting on interest rates on September 16, is unclear, US bond yields will continue to rise. The increase in the yield of US debt increases the cost of credit for families and businesses, because American bonds are the benchmark for the entire global financial system. Their rise eventually translates into the interest rates of mortgages and other credits for individuals and businesses. And more attractive yields on US debt force the rest of the countries to offer more interest to attract the capital they need to finance their debt. In fact, the daily one-year Euribor, which is the benchmark used in Spain for variable-rate mortgages, has stood above 3%, at the September 2024 level, because a next increase in the price of money by the European Central Bank (ECB) is expected. The next meeting of the entity is on September 10.

Why is this meeting being held?

The Jackson Hole meeting aims to discuss the situation and challenges of the world economy and economic policy. This is why it is held in a secluded mountain location. The gathering is promoted by the Kansas Fed, the district that includes an area of Wyoming where the town of Jackson Hole is located. The first of these meetings was held in 1978. The first four were in Kansas City. From 1982 onwards, they were moved to the national park where they continue to be held. In fact, this location was chosen 44 years ago to attract who was then the chairman of the Fed, Paul Volcker, who was a great fan of fly fishing. And they succeeded, and Wall Street bankers and other central bankers signed up. Over the years, it has gained importance to become a traditional event before the political and economic year begins. Now, around 120 central bankers, politicians, academics, and journalists participate. All attendees, including journalists, are subject to what are known as the Jackson Hole Rules. This translates into the fact that one can speak and/or write about what is said in formal interventions, but the rest is governed by a kind of confessional secret. What is discussed in informal conversations at meetings, lunches, dinners, or over coffee cannot be disseminated, under penalty of not being invited again.