There is more to what happened at Jackson Hole than just the speech by Jay Powell.
In my talk last week ,I said that our model of the Fed funds rate stood at 3.65%. This is actually 70 basis points lower than the actual level of 4.35%.
I also said that the Fed was successfully achieving a "soft landing" with employment growing at 1%. This was below the median level of employment growth since 2004 of 1.6%.
Still , as I listened to Jay Powell Speak , I noted a sense of concern in his voice when he said that "The July employment report released earlier this month slowed to an average pace of only 35,000 average per month over the past three months, down from 168,000 per month during 2024. This slowdown is much larger than assessed just a month ago."
My interpretation of this is that Chair Powell may be concerned that the "soft landing " achieved by the Fed may be in danger of turning into a "hard landing". This suggested a rate cut of 25 basis points by the Fed at the next meeting on 17-18 September.
This would leave the Fed Funds rate at 4.1%. This would mean that the Fed Funds rate would still be 45 basis points higher than our model estimate of 3.65%. Hence the Fed Funds rate would remain "modestly restrictive."
Dire Demography?
Jackson Hole was actually a Fed Strategy meeting with many speakers in addition to Jay Powell.
Two speakers who followed on the afternoon of his speech were Claudia Goldin, Professor at Harvard
and Chad Janis of Stanford Graduate Business School. They each gave foreboding presentations on the demography of developed economies.
Claudia Goldin spoke on "The Downside of Fertility". She noted that birth rates in the Developed World are now generally below replacement level. The Total Fertility rate is below 2 in France , the US and the UK.
It is dangerously low below 1.5 in Italy and Spain and below 1 in Korea. She observes that the age of first marriage of couples in the US is now 7 years later than it was in the 1960's. This reduces their child bearing years.
This paper was then followed by a discussion of it by Chad Janis of Stanford Graduate Business School. He noted that there is a profound difference between a future with a replacement rate of 2.2 kids per family , which he called the "Expanding Cosmos" with
• Growing population leading to a growing number of researchers, leading to rising living standards and Exponential growth in both living standards and population AND a replacement level of 1.9 kids per family which leads to
• Negative population growth , which he called "an Empty Planet " and the end of humanity
as numbers of researchers declines and economic growth ceases.
Of course this seems all very serious indeed . Perhaps what this really means ,is that if we want to save the world , we should just relax and start having a lot more fun!!
