US Federal Reserve chairman Ben Bernanke is expected to steer well clear of any comments that could be construed as signaling another round of quantitative easing, during a speech he is due to give at the Jackson Hole Symposium overnight.
US Federal Reserve chairman Ben Bernanke is expected to steer well clear of any comments that could be construed as signaling another round of quantitative easing, during a speech he is due to give at the Jackson Hole Symposium overnight.
Although financial and economic conditions are similar to those that prevailed a year ago when his remarks led to speculation about easing, Citi Group economists do not expect Mr Bernanke to signal a third QE regime.
A preview of Mr Bernanke's speech in Citi's U.S. Economics and Markets Daily, dated August 24, said he was instead expected to flesh out points outlined in the Federal Open Market Committee policy statement of August 9, highlighting that downside risks had risen and all options were under review if headwinds intensify.
“But unsterilized QE in particular would likely be among the last options with the highest hurdles,” the preview said.
The committee's conditional commitment to super-low rates for at least two years reflected a significant downgrading of the economic outlook, the preview said.
Instead, the speech will likely address the changes in consensus judgments and offer a defence of the radical new policy guidance.
The policy statement indicated that recovery had been "considerably slower" than the committee had expected with unemployment rising and consumer spending stalling out, the preview said.
Although the speech was not likely to break new ground about further easing, downside risks have risen so Mr Bernanke will want to emphasise that the immediate desire is to maintain accommodative financial conditions, Citi said.
“While sentiment and confidence measures have collapsed, harder quantitative measures of activity from solid industrial output to strong retail sales aren't consistent with recession.
“They will have to continue monitoring and will have to evaluate whether the tools they have would actually provide net benefits in the event fear translates to outright weakness.
“Sterilized or reserve-neutral purchases of longer duration securities may be viewed as the first, optimal choice.”
