Markets ‘likely to be disappointed’ by Jackson Hole speech
Economists and strategists view chances of massive stimulus in US as unlikely given economic data.
US Federal Reserve chairman Ben Bernanke is unlikely to give markets all they are hoping for in tomorrow’s Jackson Hole speech, according to economists and strategists.
Mr Bernanke (pictured) is set to make a speech at the Federal Reserve’s annual central bankers’ symposium at Jackson Hole in Wyoming tomorrow.
In 2010, giving the same speech, Mr Bernanke hinted the Fed would embark on a programme of quantitative easing (QE) and in 2011 said the Fed would be ready to act if necessary, words which led to Operation Twist - changing the composition of the government bonds held by the Fed - being enacted a month later.
Markets are holding out for a nod in the right direction from the Fed chairman at tomorrow’s meeting.
However, Mr Bernanke is unlikely to announce new policy measures and instead is likely to point to potential future policy options which could later be agreed by the Federal Open Market Committee (FOMC) in September or November, experts said.
Peter Dixon, economist at Commerzbank, said while many in the market are looking back to 2010 when QE was announced at that year’s Jackson Hole speech, the economic situation is “not seen as quite so dire”.
“The immediate fears of deflation are not there,” he said.
“The Fed can justifiably say that things are weak, but now is not the time to announce more QE until we have got more data.
“They have been looking at jobs data, which recently has been better than anticipated. If we get another good set of numbers in September they might decide to pass on more QE at the next FOMC.”
Mr Dixon added further QE was not Mr Bernanke’s sole decision, and that there is “significant opposition” within the FOMC to further stimulus and “quite weak data” would be needed to convince them.
The economist also said politics would play a part, with September being the “last opportunity to engage in monetary relaxation without being accused of unduly influencing the outcome of the election”.
Dan Morris, global strategist at JPMorgan Asset Management, said markets could be disappointed.
“The risk is that equity markets are disappointed and then we see further a reverse of the rally we’ve seen during the past few weeks,” he said.
Mr Morris said while the contribution of the consumer to the US GDP figures for Q2 was low - at 1.2 per cent compared with an average of 2.1 per cent since 1947 - the economy generally “is not that terrible given everything that’s going on”.
“If that’s true, it is hard to see the Fed unveiling a big radical programme. I don’t think QE3 is likely because growth is not that bad and it is not that clear what good it would do.”
The strategist added that given rates are as low as they can go and the Fed continues to deploy Operation Twist he did not know what else the Fed could do even though there are “hints that it will so something”.