Evening Must-Read: Tim Duy: Heading Into Jackson Hole

Tim Duy: Heading into Jackson Hole: “The Kansas City Federal Reserve’s annual Jackson Hole conference is next week….

…A dovish path… the conference title itself–‘Re-Evaluating Labor Market Dynamics’–points in that direction, as it emphasizes a topic that is near and dear to Yellen’s heart…. Today we received the June JOLTS report… another gain in job openings, leading to further speculation that labor slack is quickly diminishing. Anecdotally, firms are squealing that they can’t find qualified workers. Empirically, though, they aren’t willing to raise wages…. A ‘peculiar form of logic’ indeed, but one that appears endemic to US employers nonetheless.

Meanwhile, from Business Insider:

Profit margins are still getting wider…. The nightmare scenario she wants to avoid is hiking rates only to see financial markets and the economy take such a hit that she has to backtrack. Until the Fed has gotten rates up from the current level near zero to more normal levels, it would have little room to respond if the economy threatened to head into another recession.

Gasp! Is the reality of the zero bound finally sinking in at the Fed?… The Fed needs to at least risk overshooting to pull interest rates into a zone that allows for normalized monetary policy during the next recession….

Yellen can point out that since the disinflation of the early 90’s, the Fed has not faced an inflation problem, but instead has struggled with three recessions. This on the surface suggests that monetary policy has erred in being too tight on average…. Anything other than a dovish message coming from the Jackson Hole conference will be a surprise…