The Fed at Jackson Hole: Why Bother?

Don't expect much news to come of Ben Bernanke at the Fed's next big event.


As the Fed gets deeper into its stimulus program, it's increasingly going off the map.

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If monetary policy wonks in Jackson Hole want excitement this weekend, they should try some fly fishing, because there might not be much in the way of policy news.

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Earlier this week came news that European Central Bank President Mario Draghi, citing a "heavy workload," was canceling his scheduled speech at the annual symposium hosted by the Kansas City Federal Reserve. And despite heightened anticipation of QE3, there is now an increasing sense that Fed Chair Ben Bernanke won't hint at new policy moves.

"I don't think he's going to say anything particularly illuminating," says Paul Edelstein, director of financial economics at forecasting firm IHS Global Insight. "There's no upside to him committing one way or the other."

John Makin, American Enterprise Institute economist and former Treasury Department consultant, agrees. "Bernanke will not make a dramatic announcement at Jackson Hole or hint at a major new initiative like Quantitative Easing (QE) as he did in 2010," he said in a Thursday statement.

Aside from that precedent Bernanke set in 2010, there has been reason to think he might again drop a few hints—namely, the fact that the economy needs some sort of boost. Unemployment is stuck above 8 percent, and growth was at a snail's-pace 1.7 percent last quarter, as the Commerce Department reported on Wednesday.

But times have changed since 2010, says James Camp, managing director of fixed income at Eagle Asset Management. He thinks that long-term inflation may be high enough to stay the Fed's hand from pumping more money into the economy.

"I don't know that they've got the green light, at least at this moment in time," he says.

Inflation projections are certainly not skyrocketing, with the Fed expecting price growth of around 2 percent in the long run, but that's well above 2010's 1.3 percent rate for the year.

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Of course, trying to guess the Fed's actions based on a mixed bag of indicators—improved consumer spending, slow growth, a slight uptick in job creation—seems to be a fool's errand.

The Fed eliminated a little of that guesswork last week, when it released the Federal Open Market Committee's most recent minutes. Those minutes showed that many members think more accommodation could soon be needed, barring indications of "a substantial and sustainable strengthening" in the recovery.

With that groundwork laid, there may be no reason for Bernanke to show the Fed's cards before the September meeting, says Edelstein. In addition, the committee will have a few more weeks of economic data to take into consideration at its next meeting on September 12 and 13.

"Right now he has the option of not doing something," he says. "If the August employment report turns out to be quite a bit better than anyone's been expecting, maybe the Fed holds off until December."

And even if Bernanke were to hint at more easing, it may not help where the economy is hurting most.

"I don't know that he has a lever to help employment," says Camp, pointing to the evidence of a skills mismatch in the labor force. That's a problem that monetary stimulus can't fix.

So there is little reason to expect QE3, and there will be no news from Draghi. Will there be anything to look forward to?

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Maybe. Makin sees the potential for Bernanke to signal that the Fed is willing to extend its guidance on low interest rates, possibly through 2015. Thus far, the central bank has maintained that it expects that "exceptionally low" federal funds rate levels will be warranted through late 2014, at least.

Aside from that, expect more from the Fed chair on the continued weights on the economy: Europe and the fiscal cliff. Bernanke has in past visits to Capitol Hill urged lawmakers to resolve the fiscal uncertainty looming at the end of the year, when Bush-era tax cuts will expire and spending cuts will go into effect, potentially sending the U.S. back into recession.