The Message from Jackson Hole: Get Used to an Unsettled Economic Climate

The volatility of recent years may persist, according to top economic policymakers who converged in August on Jackson Hole, Wyoming for their annual symposium.

Up-and-down growth, supply chain disruptions, and inflation—all of which have caused global uncertainty—may not disappear in the next few years, many in attendance said. Add the immediate threats of geopolitics, enduring pandemic concerns, and climate change, and managing macroeconomic policy becomes an even more daunting task.

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Since 2020, inadequate supply has been the chief hurdle. Previously, the key worldwide economic challenge was insufficient demand, characterized by not enough spending, jobs, and investment. The pandemic’s business shutdowns, the Russian invasion’s destruction of global energy and food markets, the foreboding outlook on relations with China, and the weather extremes caused by climate change have all created a volatile economic landscape.

"The challenges we are facing are likely to bring about larger, more frequent, and more persistent shocks in the years ahead," said Isabel Schnabel, a member of the European Central Bank executive board, in a talk at the conference.

She was not alone in her assessment. "There is good reason for concern that the pandemic and war may lead to an era in which supply shocks are larger, and in which inflation expectations may be less well-anchored," said Gita Gopinath, Deputy Managing Director of the International Monetary Fund. Rolling disruptions will likely be the norm, many attendees said.

While these policymakers are in no position to directly impact global politics, climate, and disease, they are tasked with keeping inflation from enduring at a high level and softening the blows of these crises however they can. During the previous generation, a 2% annual inflation rate was the goal. Today, some question whether that target needs to be adjusted.

"If you want to stick with an inflation targeting regime, you have to think about a higher or different kind of inflation target, or one that sections off some of these shocks," Adam S. Posen, President of the Peterson Institute for International Economics and a former Bank of England official, told Axios.