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Deutsche Bank’s economics team doesn’t expect too much excitement when Ben Bernanke speaks at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming.”While we think the Chairman may take this opportunity to elaborate on remaining policy options for policymakers, we do not believe he will pre-commit to action at the September 12-13 FOMC meeting,” writes senior U.S. economist Carl Riccadonna.
But this doesn’t mean they won’t be listening.
Indeed, Riccadonna will be listening for two things: their thoughts on the health of the economy and thresholds they might set for further action. From their recent note to clients:
One, to gauge the Chairman’s assessment of the near-term economic trajectory—specifically, to determine his degree of confidence that the economy is reaccelerating in H2; and two, to discern the economic data thresholds which would warrant further policy action. With regard to the first point, the minutes of the last FOMC meeting suggested that the Fed staff had downgraded their near- term economic projections, but made little adjustment to their medium-term view. Any policy response in September will depend on the evolution of policymakers’ central tendency forecasts. The subsequent improvement in July retail sales, industrial production and nonfarm payrolls, as well as the firmer stance of Q2 GDP after revisions, may modestly lift policymakers’ assessment of current conditions. This relates directly to the second point above, because the recent pick-up in the data marginally reduces the need for additional, significant accommodation.
With respect to data thresholds for additional Fed action, there appears to be a contingent within the Fed which prefers to more explicitly link policy to economic targets rather than calendar dates. Thus, an additional facet of the Chairman’s speech could be his advocacy toward adopting such measures. This could be applied to the fed funds exit, balance sheet unwind, Twist extension or additional QE…