And this one time, at economist camp… | FT Alphaville

And this one time, at economist camp…

It’s Friday.

It’s what you’ve been waiting for.

It’s what he’s been waiting for…

It’s what that other guy isn’t going to

It’s Jackson Hole, baby! Tenth district of the Federal Reserve is where it’s at! Serious economic policy and solid cues about the likelihood of a third round of QE all the way!!!

Or ummm, not so much…

Barclays thinks we’re setting ourselves up for disappointment:

Stubbornly strong US data may give investors who are positioning for a proactive Fed some food for thought and push them to take profits on risk-positive positions prior to the Jackson Hole speech. We believe that Bernanke will avoid sending a clear signal about Fed intentions for the September meeting, and the market’s disappointment could have a modest negative effect on risk appetite in coming days.

Credit Suisse thinks so too:

This year, Bernanke may again discuss the costs and benefits of various policy alternatives – a defined QE3 operation, flexible asset purchases, new communications strategies, cutting interest on reserves, funding for lending, adherence to simple policy rules, etc. But those expecting Bernanke to provide clarity on the likelihood of a September QE3 kick-off (or some other easing innovation) are likely to be disappointed.

The theme of this year’s symposium is “The Changing Policy Landscape,” which gives Bernanke great leeway on subject matter.  Last year, Bernanke’s Jackson Hole address was not policy-oriented, but rather focused on the long-term potential of the US economy. Yet, less than a month after that speech, the FOMC initiated Operation Twist. This should serve as a reminder that a hint from the Chairman is neither a prerequisite for nor an assurance of subsequent  FOMC action.

If the chairman’s thought process is anything like ours, he has not yet decided whether to press for a substantive easing move as soon as September 13. If this is the case, his speech on Friday is likely to be even-handed, with an objective of having little or no market impact.

If we are wrong, however, and Bernanke is ready to provide more accommodation  imminently,  it would take only a few well-placed phrases from him on Friday to prepare the markets for such an outcome.

(For logical completeness, he might also signal no appetite for immediate action, but we see little to be gained from throwing cold water on thin Labor Day financial markets.)

Paul Donovan at UBS, inspires FT Alphaville’s headline, and is also a party pooper:

Finally, Bernanke speaks at the start of the Jackson Hole holiday camp for economists. Those hoping for hints as to September policy action are likely to be disappointed. Hoping for a hint of the September FOMC outcome is probably wishing for the wrong thing anyway.

The value of the Fed Chairman’s speech will be if he elaborates on the philosophy of monetary policy today. Economists want to understand how policy makers perceive policy is interacting with the economy (as so much has changed), to get a better understanding of longer term policy trends.

Evariste Lefeuvre from Natixis North America goes all ‘This Time is Different’ on us:

Following its recurrent call for more transparency with increased communication, Bernanke’s 2010 Jackson Hole speech is remembered for launching QE2. Similarly, last year, Bernanke indicated further monetary policy easing (Twist), which the markets welcomed. Yet, this year it might be different for several reasons:

1. The US Economy is currently picking-up, albeit modestly;
2. Risks of deflation are low compared to 2010;
3. More importantly, the title of the speech is backward-looking

2010: The Economic Outlook and Monetary Policy
2011: The Near- and Longer-Term Prospects for the U.S. Economy
2012: Monetary Policy Since the Crisis

The title of this year’s speech suggests a backward-looking approach to the monetary policy discussion. Bernanke is therefore more likely to focus on the past, and will probably discuss the changes in communication the Fed adopted earlier this year.

Therefore, despite the fact that “many members” were pushing for more monetary action at the last FOMC meeting, Bernanke’s speech is unlikely to mention further easing. We expect an update on the Fed’s perception of the economy and the list of the potential options available. Bernanke will likely note that the upcoming FOMC meeting will provide more clarity and more vision for the steps ahead – the general “Fed stands ready to take action” spiel.

At least Citi’s Steven Englander and Andrew Cox focus on the meta:

A minority thinks that a strong nod will be given to near-term QE3 or that the new unorthodox policies which the Fed is contemplating will be discussed sufficiently concretely to suggest that they are coming down the road. The smallest minority think the Fed will stonewall and emphasize issues related to long-term fiscal policy (if only because they are afraid that one day they will be forced to buy the pile of US government debt that is being built). The feeling seems to be that the Fed’s meta-message is what counts and that the message is that the Fed will be watching the US economy’s and asset markets’ back, irrespective of what the Fed Chairman chooses to emphasize at Jackson Hole.

JPMorgan’s Michael Feroli, reminds us about the difference between an FOMC meeting of a group of individuals versus a speech by one guy:

There are two reasons we do not expect a strong policy signal from the Chairman tomorrow. First, this is a speech, not an FOMC meeting, and we do not think Bernanke is inclined to front-run the Committee less than two weeks ahead of the next meeting, particularly since we have yet to receive some important data before the September meeting. If anything, our sense is that many Fed policymakers would prefer that Jackson Hole not be treated as a major policy signalling event. Second, we believe that in the last few years Bernanke has shied away from using Jackson Hole to hint at the near-term path of policy. While many believe that the 2010 and 2011 Jackson Hole speeches were strong signals of QE2 and Operation Twist, we think the “real time” record is different. Leafing through a number of sell-side analysts’ reactions immediately after those speeches the consensus was that both were non-events. That’s not to say there weren’t subsequent strong signals — Don Kohn’s newspaper interview, Bernanke’s Boston Fed speech, etc. — but that the immediate reaction was that Bernanke didn’t say anything that wasn’t already in the minutes or other official communications.

Might not even be the sort of thing one needs to get dressed up for, eh?

By David Keohane and Lisa Pollack

Related links:
Jackson Hole 2012 collection – flickr
Ben Bernanke at Jackson Hole – FT
Minutes minutiae and open(-ended) questions – FT Alphaville
FOMC minutes to the July 31 / August 1 meeting – FT Alphaville
BloombergTV Floored By The Revelation Ben Bernanke Owns Jeans – Dealbreaker