Will Friday Be Yellen’s ‘Irrational Exuberance’ Moment?

All eyes are obviously on Jackson Hole, where Janet Yellen and Mario Draghi will pontificate on how to “foster a dynamic global economy” tomorrow.

There’s considerable debate about how much Friday’s speeches will actually matter and although I don’t have any data to back this up, anecdotally it seems like “level of anticipation” has become negatively correlated with “market impact” when it comes to central bank speeches and even central bank meeting outcomes.

It seems like we’re drifting towards a state of affairs where the real danger comes from someone (or some robot) reading “too much” into something – see the aussie’s reaction to the July RBA minutes for one recent example.

Whatever the case, Draghi and Yellen will regale everyone tomorrow and it’s at least possible that one of them says something “wrong” or something “right” (depending on which side of the trade you happen to be on) and ends up moving markets.

The ECB has already doused speculation that Draghi will telegraph his next move, so any comments on a euro “overshoot” (a hot topic of late) notwithstanding, the focus will be on Yellen.

Here’s Bloomberg’s Cameron Crise with a couple of quick bullets:

On the face of it, any event featuring both Yellen and Draghi is a big deal for markets. That’s all the more so given the relative dearth of key fundamental (as opposed to political) market drivers in recent weeks.

While we won’t know the exact program until late on Thursday, this year’s symposium topic (“Fostering a Dynamic Global Economy”) looks relatively anodyne compared to prior forum themes, which have focused on inflation, labor markets, and monetary policy frameworks.

It’s true that Yellen is speaking about financial stability. With equities near all-time highs, credit spreads tight, and volatility near historic lows, there is certainly ample possibility for the Fed chair to shake things up. However, it seems unrealistic to expect any sort of “irrational exuberance” moment. A discussion of U.S. and global regulatory frameworks seems more likely — at which point traders’ eyes usually glaze over.