Tomorrow afternoon is Ben Bernanke’s address to a convention on economic policy at Jackson Hole, WY. I was in Jackson Hole in May and boy, is it a beautiful setting!
Ben’s speech has been eagerly awaited and one reason the market has gone sideways for a couple weeks is the wait to see what he will say tomorrow. The Fed minutes for the last meeting said, “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.” At the time, few doubted that the economic reports prior to the September meeting would provide that information.
The latest rumor from several sources is that Bernanke will disappoint investors who felt like the annoucement he did recently all but guaranteed a new round of quantitative easing. He will likely say only that they are keeping a sharp eye on the economy.
The next Fed meeting is not for a couple weeks and that is when QE III would most likely be decided. The next meeting is in October, the month before the election and is felt to be seen as too political for making such an announcement so the Sept. meeting is the one he would use to announce it. That doesn’t mean QE III has to be announced at a meeting but absent a 2008-style crisis, it likely would be.
The next 2-3 weeks also include important meetings and annoucements from Europe so there will still be plenty of drama and anticipation but again, don’t rule out disappointng news for investors. It may be that investors who have rejoiced over European announcement and then suffer disappointment may just be adopting a more jaundiced view now.
September is on average the worst month for US stocks, although it was a great month in 2010. Still, it was a poor month in 2007, 2008, 2009 and 2011.