As anticipated Ben Bernanke did not offer up any new policy moves during his Jackson Hole speech. Instead he called on Congress and the President to do more for the US economy by supporting responsible fiscal policy and additional measures to stimulate economic growth. By extending the next FOMC meeting by two days the Fed chief put even more for a policy response though the bar for QE3 remains high.
The lack of new policy measures was largely expected as Ben Bernanke emphasized his past statements of a slowing US economy and the Fed’s ability to act if needed. Bernanke chose to highlight steps the Federal government could take to support the economy. This may now set the stage for a potential stimulus program from President Obama in his September economic speech, one factor that may ultimately help the US economy rise up from the almost 4-year downturn.
Key data events this week will likely help to formulate market expectations for additional policy easing measures with the release of Thursday’s ISM PMI survey and Friday’s jobs report. Forecasts are steadily bearish with expectations declining by 9k between Monday morning and last Friday.
In his speech Ben Bernanke did announce that the Fed’s next FOMC meeting in September will be extended to a two day meeting. This hints at additional Fed action at the September meeting. But those looking for another round of quantitative easing may be getting ahead of themselves. While the Fed has reduced its expectations for US economic growth, increased inflationary pressures will likely keep any QE3 in the tool chest of the Fed until the risks of US growth expectations are affirmed to the downside or another dramatic swing lower in US equity prices. Until then the bar for QE3 remains high and the Fed will likely limit its policy moves to less controversial methods such as increasing the size of its balance sheet or extending the maturities of the US Treasuries the Fed holds.
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