All eyes and ears will be on Federal Reserve Chairman Ben Bernanke tomorrow as he speaks at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming.Vincent Reinhart, Morgan Stanley’s Chief U.S. Economist and former Fed insider, doesn’t expect any major actions for two reasons:
- “First, he respects that the Federal Open Market Committee is a committee. That is, monetary policy actions are group decisions and it is inappropriate to front run the outcome of a democratic process.”
- “Second, he wants to keep a relatively low profile during an election year when the Federal Reserve is already a hot-button campaign issue. His speeches and testimonies over the past few months—even his semi-annual report on monetary policy—have been short, factual, and uneventful.”
Reinhart expects Bernanke to acknowledge all of the latest economic data, while maintaining everything that was said during the last FOMC meeting.
However, should there be a major announcement, here’s what Reinhart thinks it would be:
The main possibility for surprise is if he addresses the ongoing work within the Fed on conditional policy rules. The last set of minutes referred several times to discussions of rules and more open-end policy commitments. Up to now, the Fed has been using its policy instruments in an unconditional way, in that it announces a program of fixed duration and fixed amount. Most academic work, as will be discussed in the formal program at Jackson Hole, suggests that a rule linking the policy instrument to economic outcomes or the outlook performs better.