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[Economic Opinion] Ripple from Jackson Hole

A bout this time every year, a little mountain town of remote Wyoming gets global attention as dozens of prominent financial scholars and central bankers in the world flock together into an old hotel, Jackson Lake Lodge. Hosted by the Federal Bank of Kansas City, the symposium was first held in 1978 as a platform for discussions on various academic and practical policy issues.

This year, the Kansas City Fed announced that the economic symposium will be about “Macroeconomic Policy in an Uneven Economy.” Unlike the vagueness or opaqueness of previous symposiums, this year is more specific when it comes to the topic. Last year, the symposium was about the future decade, and in the year before, it was about challenges for monetary policy. But this time, the forum has decided to focus on unevenness in an economy, in the context of monetary policy.

The theme of unevenness exactly reveals the headache, or confusion, to say the least, that the Fed of late has been grappling with. It has faced a very difficult task of determining the federal funds target rate, currently at between 0.0 percent and 0.25 percent, and has shown no action at all in the midst of inflation higher than 6 percent.

The statistics, especially inflation, definitely have shown that the Fed should have raised it, but the unemployment statistics are very confusing because the story is different in different areas. In some of the northeastern or southwestern states, employment figures are so good as to raise the target rate, but the job numbers for those in southern states or for some ethnic groups are not as brilliant as elsewhere. This is the unevenness that has led the Fed to hesitate in acting on its rates.

The Jackson Hole symposium is a kind of deliberation process after which every member of the Fed board, as well as all other observers, will bid farewell without any ambiguity or hesitation. Of course, the dictation may not be clear as a crystal ball, but every bystander expects that somehow the Fed this time will give a sure signal, putting an end to a long period of complacency and laziness of doing nothing. That doesn’t mean the Fed will raise the rate. More likely, it will decide to gradually reduce asset purchases, from 120 billion dollars a month to maybe 100 billion dollar—who knows. The exact amount is not that important. It is the action of reduction in and of itself that matters. From then on, people will begin to know that the inevitable, but somewhat irresponsible quantitative easing era since 2018 is about to fade away, and a new world of monetary tightening will take its place. Slowly but surely, the effects of higher interest rates and tighter credits will be felt around the globe. Korea is no exception. The Bank of Korea has signaled action number of times. If not in August, we may see a rate hike sometime in the fall. Those with heavy debt burden should be much more wary about what is going on in Jackson Hole. The earlier the move, the less the damage. Korea is strong and mature enough to weather the storm quite admirably.

By Professor Se Don Shin
Professor Emeritus, Sookmyung Women’s University

The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA

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