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An Aging Bull and a Surging Dollar: High Stakes at Jackson Hole


Written by Angela Roberts

Aug 23, 2018

It’s somewhat fitting that the future of global monetary policy and the path of U.S. interest rates will be discussed in a place renowned for the Million Dollar Cowboy Bar complete with saddle stools, Wyoming Whiskey, and thousands of Morgan Silver Dollars embedded into the bar top.

The Jackson Hole Economic Symposium is a yearly event sponsored by the Federal Reserve Bank of Kansas City. It started back in 1978, and the Fed bills it as “one of the longest-standing central banking conferences in the world.” Attendees include finance ministers, economists, policymakers, government representatives, market heavyweights, academics, and—of course—central bankers.

Throughout the symposium’s history, representatives from some 70 countries have gathered just west of the Continental Divide to discuss money, policy positions, and the fiscal challenges facing the world’s economies.

Jackson Hole is actually a valley surrounded by various mountain ranges, the most famous of which is the Tetons. With a stunning canvas of majestic peaks, rambling waterways, dense forests, wildflowers, and wildlife, Jackson Hole is among the most beautiful places in the American West.

Here the world will look for clues about the pace of interest rate hikes, balance sheet policy, and commentary on emerging markets, which are currently being thrashed by a strong U.S. dollar. The Turkish lira has fallen so dramatically against the greenback that Standard & Poor’s cut the country’s sovereign credit rating—downgrading it to “junk.” Argentina, Russia, South Africa, and Chile have also experienced currency woes, while emerging markets’ stocks have fallen into and out of correction—prompting investors to pull billions from those markets.

U.S. Fed Chair Jerome Powell is scheduled to deliver a speech on Friday about “monetary policy in a changing economy,” and investors will also be listening for mention of trade war fallout, the U.S. housing slowdown, and weakening Chinese growth.

Powell needs to be careful. His remarks will be closely followed by the markets and the media, and anything perceived as gloomy could severely rattle world currencies and rile Wall Street. He’s also subject to possible reproach by a U.S. president who has already openly criticized the Fed’s July rate hikes.

So with all the suspense of a late-summer storm rolling through Snake River Canyon, we await the boom. Will Powell strike a dovish tone in light of the dollar’s histrionic rise, or will he stay the course with previously planned rate hikes? The third rate uptick of 2018 is expected in September and the fourth in the month of December.

There’s no doubt that a strong dollar heightens risks for developing economies, and in the wake of the dollar’s monster rally, few currencies have emerged intact. In this respect, Turkey could well be the canary in the coal mine.

China’s renminbi has actually been one of the weakest currencies in the world over the past few months, and Beijing is now contending with the prospect of massive capital outflows. The euro has also been struggling. Exports have slowed, business confidence has been shaken, and political noise is on the rise among the 28 member states. Brexit has proven to be messy, and with a vulnerable Angela Merkel of Germany and rising European populism, disunity now threatens the corridors of power in the eurozone.

America’s trade wars also pose threats. Reciprocal tariffs could dramatically increase consumer prices, lower domestic wages, sink productivity, and undermine GDP figures. High inflation, rising unemployment, and sluggish growth could leave the Fed grappling with full-blown stagflation.

And let’s not forget that the U.S. bull market is now the longest in history. Born of a housing crisis and a punishing economic downturn, the bull that began its run in March 2009 has now been going for almost nine-and-a-half years.

Reminiscent of the early morning shadows on the Tetons, money is fleeting. Similar to the patchy terrain of Avalanche Canyon, the global economy can be unpredictable. And much like preparing to drop into Corbet’s Couloir, we often find ourselves closer to the edge than we realize.

Clearly those Morgan Silver Dollars that were built into the Million Dollar Cowboy Bar some 80 years ago are there for a very good reason: to remind us of the lasting legacy of physical precious metals.



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