Photo: AP Images
The most overhyped event of the week is Bernanke’s speech at the Jackson Hole Economic Symposium sponsored by the Kansas City Fed.In the absence of anything really going on (not much economic data, not much trading volume), all the talk is on the speech that will happen Friday morning, where it’s possible that ben Bernanke will give hints of QE3.
But there are two reasons why this speech is probably way overhyped.
FIRST: It seems very unlikely that he will give an excellent summary of what to expect, which is basically… sticking to the past script:
The Chairman will no doubt support Fed actions already undertaken will simultaneously expressing his view that there is scope for further action, although such action does not come without risks.
We believe he will stick closely to the sentiments expressed in the most recent FOMC statement and the minutes from the most recent meeting. Deviations from this script in one direction or the other would be the basis for more/less potential easing.
A rundown of the possible policy actions – including IOER reduction, rate guidance and additional asset purchases.
We do not expect the Chairman to specifically endorse one over the other although the minutes suggest that the FOMC is leaning towards additional purchases as a preferred action.
Expectations for Jackson Hole should be separate from expectations for the September FOMC meeting as the August employment report will be released in between the two. This report could be the final indicator for what to expect from the FOMC.
SECOND: There’s not much evidence that the market really cares.
People are talking about the potential for huge disappointment if Bernanke doesn’t do something, but that’s not really clear.
Markets reacted with a loud meh last week after conflicting reports on what the Fed would do sent expectations spinning.
And beyond that, the last few years of trading have shown pretty clearly that what the market cares about is data. DATA DATA DATA. If the Fed doesn’t do anything, and the data improves, stocks will likely improve. If the data deteriorates, the market will likely be unhappy.
So Bernanke should be interesting, and there is the chance of a real surprise. But most likely Bernanke won’t unveil a game changer, and the market won’t react hugely.
All that being said, Mario Draghi is speaking on Saturday at the same event. That will be interesting