Bernanke's Jackson Hole
Speech may be a letdown
Federal Reserve chairman Ben Bernanke will speak later this month at an exclusive meeting of the world's top economists in the shadow of the Grand Tetons in Jackson Hole, Wyo.
Every year, the Federal Reserve Bank of Kansas City hosts a meeting of the world's top economic minds near the small Wyoming town of Jackson Hole.
The invitation-only meeting is usually a big deal, closely watched
by investors, economists and journalists. Fed chairman Ben Bernanke has
made market-moving announcements there in the past. But those who have
been to the Jackson Hole meeting before aren't expecting much from
Bernanke when he gives a speech on August 31.
Allen Sinai, chief global economist for Decision Economics and a
Jackson Hole attendee for the past 20 years, said people "will be
disappointed" if they think Bernanke will signal that the Fed is ready
to launch a third round of quantitative easing or QE3.
"I don't think he's going to say anything new," added Catherine
Mann, a finance professor at Brandeis University and former Fed
economist who has attended the meeting twice.
Wall Street has high expectations for Bernanke to make a bold statement about future policy.
After all, Bernanke used his 2010 Jackson Hole speech
to hint at QE2. Many are hoping the Fed will soon launch a third round
of asset purchases to further boost the economy, and as a side effect,
juice the stock market.
But here's the problem: The latest batch of economic reports have
muddled the picture for the economy and could make it more difficult for
the Fed to justify any major change in policy.
On the upside, hiring picked up significantly in July, retail sales climbed for the first time in four months, and home prices have been rising.
However, the unemployment rate rose, new and existing home sales have slowed and the manufacturing sector is contracting.
"There have been mixed signals making it hard to tell what's going
on," said Mark Gertler, a New York University economist who has written
papers with Bernanke and presented his work in Jackson Hole. "We're
sort of in a gray area. I think Bernanke will make the case that the
economy is underperforming, but it's still hard to tell for sure what
direction it's headed."
More data, including the August jobs report, will be released
between the Jackson Hole symposium and the Federal Reserve's next
policymaking meeting, scheduled to conclude September 13. Could those
numbers sway the Fed's decision? It's possible.
The Fed has already gone to great lengths to expand the money
supply and stimulate the economy. Given that interest rates have hovered
just above zero percent since late 2008, it seems the cost of credit
isn't the problem holding the economy back.
Rather, economists point to Europe's debt crisis, a gradual global
slowdown, and uncertainty about taxes and federal spending in the U.S.
as holding businesses and consumers back.
Bernanke may focus on those topics, instead of signaling any future action from the Fed, Mann said.
"There's not going to be enough data for him to say anything new,"
she said. "It's possible he will make some reference to slowing global
growth, increasing headwinds from Europe, and the slowing of the economy
as the consequence of uncertainty related to fiscal cliff."
In that case, Bernanke's speech could look very similar to last year's, when he talked about how Europe's crisis and the U.S. debt ceiling debates were dragging on growth.
Back then, Bernanke urged Congress to design tax policies and
spending programs in a way that would "encourage investments in the
skills of our workforce, stimulate private capital formation, promote
research and development, and provide necessary public infrastructure."
He also urged lawmakers to address the long-term finances of the
government, which could "spiral out of control" as the population ages
and healthcare costs rise.
Despite his repeated reminders at hearings and speeches, Congress has done little since then to heed Bernanke's advice.
