They say Wall Street is the epicenter of financial markets. But when it comes to the policies that influence markets, all eyes will be on Jackson Hole, Wyoming, this week.

Every year, the Kansas City Fed, one of the 12 regional Fed banks, hosts an economic conference in Jackson Hole. Think of it as a company retreat for the who’s who of central banks, governments, and academia.

This year’s conference takes place on Aug 24-26—with the agenda focused mainly on Covid after-effects and how they’re shaping the global financial system.

But the real reason investors care so much about Jackson Hole isn’t the talking points or the agenda.

Why Jackson Hole?

If you’re unfamiliar with U.S. geography, Jackson Hole is a valley in Wyoming near the border with Idaho.

It’s 55 miles wide and has an average elevation of 6,800 feet. The valley only has one settlement, Jackson, with a population of roughly 11,000 people.

Why was such a seemingly random location chosen for the Fed’s annual conference?

Turns out, it’s a top fly fishing destination. And in 1981, the Fed’s chief at the time, Paul Volcker, simply felt like casting a line.

Why everyone is buzzing over Jackson Hole

Historically, Jackson Hole has been a venue for policymakers to make big announcements or discuss new ideas.

The Fed chair always addresses the conference in a keynote speech. With so many high-profile central bankers attending, there’s a good chance they may say something profound.

For example, at last year’s conference, Fed chair Jerome Powell said he would do anything to ensure “price stability” for the U.S. economy. This vital message conveyed that the Fed will not stop raising interest rates until inflation is under control.

Investors who believed the Fed would be a little more lenient were instantly crushed as the S&P 500 plunged 3%. The stock market would go on to have the worst year since the Great Recession.

Ultimately, what the Fed boss says at Jackson Hole doesn’t have an immediate effect on policies. Sure, the markets will react, but policy will take time to follow the chairman’s lead.

However, it probably won’t take long. The Fed will hold its next interest rate meeting on Sept. 19-20.

What to expect at this year’s conference

The most anticipated speech this year will take place on Aug. 25 when Powell takes the stage.

Nobody knows for sure what he’ll say. Wall Street is betting he’ll focus on inflation and interest rates.

Treasury yields just hit a 16-year high. Mortgage rates have topped 8%. Inflation has fallen from a peak of around 9% to about 3%.

Something has to give.

Investors were saying that last year when they expected the Fed to ease off on raising interest rates because of a collapsing stock market. But the Fed pressed on with ten consecutive rate hikes.

The problem with inflation is that the Fed looks at “core” prices, which haven’t fallen as fast as overall prices.

“Core” inflation measures the price of goods and services, excluding volatile food and energy categories. And most of them remain uncomfortably high.

As such, bets are leaning toward Powell keeping at rate hikes. The question remains: how far is Powell willing to go and how long can he keep interest rates elevated?

Jackson Hole may not offer a definitive signal, but Wall Street treats it as an important temperature check of the Fed.