This Friday, Federal Reserve Chairman Ben Bernanke will deliver
a speech at the annual Jackson Hole policy summit. Some
Fed-watchers believe that this is when we will more concrete clues
about what policy actions the FOMC might take at their September
12-13 meeting, especially since the 2010 speech was used to
I happen to agree that this speech is important, but at the same
time, I'm not expecting QE3. I just think that this Jackson Hole
speech is significant for the following 3 reasons...
1) The most recent FOMC minutes (from the Aug 1 meeting) had
some shifts in language and emphasis that showed a Fed very ready
to act when needed and highlighting that the economy has
significant capacity to handle more QE. We should expect more
clarity from Ben on what these gestures and tone meant.
2) Lots of data economic data points -- some fairly good -- have
occurred since the last meeting, so Ben gets a chance to provide
fresh analysis of the economy.
3) The Sep meeting is one of the quarterly ones with an update
of economic forecasts and a Big Ben press conference. So, we will
get some idea about if the FOMC economists are lowering their
projections for GDP and inflation and raising them for
This is all very important and Jackson Hole will give us clues
about what to expect come Sep 12-13.
But, three other issues affect Fed decision-making and
1) Will they avoid political mud if they act near the election?
Do they care, or are they faithful economists who only care about
the path of the economy regardless of politics? Even if Bernanke
and Co. are above the fray, some of their own are concerned about
perception affecting reality, Dallas Fed's Richard Fisher among
2) It is now common wisdom that the Fed is "out of ammo" and
beyond "pushing on a string." Will they want to save arguably their
last bullet until it is really needed, say surrounding another
Congressional train wreck that pushes the economy over Ben's Fiscal
3) Speaking of train wrecks, how much does the euro-mess drive
Fed concerns? If Europe doesn't get QE religion soon, will the Fed
feel compelled to buy more insurance against their deepening
recessions and anxieties?
Given all these moving parts in Fed game theory, is this market
rally built on stimulus dreams and will players be disappointed
when they don't get any better certainty about it this Friday?
Or, does the rally live regardless of Fed words and moves? I
think it does. We may actually get a sell-off this week in advance
of the speech and then the rally continues next week.
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