Jackson Hole: estimates of natural real rates falling dramatically - Socgen

Kit Juckes, economist at Societe Generale explained that the interesting Jackson Hole debate will be about monetary policy in a world where equilibrium real interest rates are really low. 

Key Quotes:

"Fed President John Williams raised the issue in his most recent Economic Letter. He writes that "countercyclical fiscal policy should be our equivalent of a first responder to recessions” yet the press has made much more of his asking whether a higher inflation target would be a good idea, and of his observations that it is still possible for a rate hike to come in September. That shows how difficult it is to separate the conceptual debate about policy-making, from the narrow consideration of when the Fed make its next move. 

Despite the fact that whenever they do act, the pace of hikes is bound to be glacial. The FOMC is obsessed with making sure that rate hikes don't cause collateral damage by coming as a surprise and the memory of the ‘taper tantrum' three years ago is still raw enough. Absent a surprisingly sharp pick-up in inflation, when the Fed does finally hike, the FOMC will then go back into its shell to see what happens.

All of which means that incentives to go searching better yields elsewhere won't go away any time soon. Wobbles are likely, because inflating asset bubbles isn't a smooth business, but Jackson Hole is unlikely to be a catalyst for anything more serious than a wobble - and if Janet isn't forceful it won't even do that."