The Federal Reserve Bank of Kansas City’s annual Economic Policy Symposium is a serious, sombre affair. It is not a policy meeting, nor is it designed to drive expectations for future policy decisions.


It’s a talking shop and we should take the goods on offer with a good dose of salt. Back in the days of Greenspan, it was dull and dismal – as economics ought to be. It was Bernanke who started to use the forum as a platform for making statements about monetary policy direction.

The current Fed chair, Janet Yellen, likely to continue to this tradition. The subject of her speech, ‘The Federal Reserve’s Monetary Toolkit’,  leaves little room to assume anything else.

Of course the markets are incredibly quiet this August ( in sharp contrast to last year) so investors are latching on to anything they can, which gives this meeting arguably a lot more attention than it probably deserves. Investors will hang on every word uttered by Yellen.

The big question on the table is whether the Fed is ready to raise rates in September.

Markets are currently pricing in a one-in-five chance the Fed will hike next month. This may smack of complacency and Fed officials have been keen to steer markets to accepting a rise is on the table. The outlook has improved a lot and some analysts think the FOMC will vote to raise rates at the September meeting.

Messrs Stan Fischer and Bill Dudley, respectively the Fed vice-chair and New York Fed president, have both recently argued that a rate rise could come next month.

We can probably expect Yellen to signal the Fed’s confidence about the US economy and this could drive up expectations it will pull the trigger in September, potentially pushing up USD and hitting gold.

Stellar jobs numbers and GDP forecasts support a hike, but retreating inflation has clouded the outlook. Minutes from the last meeting showed some policymakers have said they want to see improving price growth first before further tightening.

But Yellen’s habit of keeping markets guessing with alternately ‘hawkish’ and ‘dovish’ remarks should be kept in mind. There is little incentive for her to significantly move markets with a surprise.

If the Fed really is eyeing a September rate rise, she will want to prepare markets for the possibility. But either way she cannot pre-judge what the other policymakers think and what the data will be – monetary, as the Fed has been wont to stress, is not on a pre-set course.

Indeed what the meeting will highlight is just how hard it is for central banks to ‘normalize’ policy after years of accommodation.