http://www.zerohedge.com/news/what-expect-bernanke-j-hole
What To Expect From Bernanke At J-Hole
Expectations for tomorrow's J-Hole speech by the venerable Ben Bernanke vary from the mundane "things-we-can-still-do; monitoring-situation" to the exuberant "we'll-print-our-way-out-of-this-mess-no-matter-what-and-I've-got-your-back-for-anything-more-than-a-1%-drop-in-the-Russell". We suspect, like Morgan Stanley's Vince Reinhart that a lot of people are going to be grossly disappointed as the FOMC (C for Committee) meeting is so close and the election being just around the corner means playing-down any miracle-making. Instead we suspect it will be more of the same - disappointment in economic performance, could do better, closely monitoring, Fed-has-tools; i.e. a replay of most of his recent speeches in tone. Reinhart does see some room for surprise though - especially on conditional policy rules (and the potential problems with over-reaching their mandate).
Vincent Reinhart, Morgan Stanley: The Message from the Mountains
We have had low expectations for significant news from Chairman Bernanke’s Jackson Hole address for some time 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.
What does he have to do? He has to convey that the Fed has been disappointed in the economy’s performance, that policymakers are inclined to provide additional accommodation soon unless there is a significant and sustained improvement, and that they will closely monitor the situation. Essentially, all he needs to do is repeat portions of the statement and minutes from the July-August meeting. Along the way, he will highlight that it is a beautiful venue for a conference, that they are about to hear interesting papers, and that many fiscal challenge remain unanswered.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.The idea is that the Fed could agree, for instance, to keep the funds rate target at zero as long as they have an economic forecast that is short of their mission. The problem is that the mission at the heart of Fed policy-making is ambiguous. In the Federal Reserve Act, the Congress tells the Fed to foster maximum employment and stable prices but is silent on how to weigh deviations from the two objectives or how quickly those deviations should be eliminated. The monetary policymakers at the Fed are a diverse group of people who disagree on how to fill this silence. If they can come to terms with this issue, then they can offer more open-ended assurance to financial market participants and the public at large.Chairman Bernanke is unlikely to offer a Solomonic solution, but his speech would be more interesting if he relayed where they are in the process.
and....
http://ftalphaville.ft.com/blog/2012/08/31/1140881/if-qe3-is-so-close-why-is-the-feds-balance-sheet-shrinking/
If QE3 is so close, why is the Fed’s balance sheet shrinking?
As the markets wait to see if Helicopter Ben is maybe about to treat them to a third round of QE, it’s interesting to note that the Fed’s balance sheet has been shrinking of late.
This morning’s The King Report raises the obvious question:
If QE 3.0 is imminent, why isn’t it expanding?
On August 29 the Fed’s balance sheet was $42.76bn lower than a year ago, accordingto the latest figures. And $12.94bn lower than the previous week. Looking at total factors supplying reserve funds, these are down $31.52bn from a year ago and $6.99bn from the previous week.
From Andy Lees at AML Macro, who points out that the balance sheet is $115bn smaller than it was on December 28 last year (emphasis ours):
and......Over that period it is down 4% which annualises at nearly a 6% contraction. Even since the end of June the balance sheet has contracted by USD51.06bn so the decline was not front loaded or anything like that.Whilst the figures are not huge, and I’m sure there is some volatility in there, it does not seem indicative of the Fed about to launch a new bond buying programme.A friendly source adds:The suggestion from clients is that this is bonds rolling off quicker than the Fed is able to buy back, and that the contraction does not necessarily indicate that it is voluntary and the central bank is happy with this. Nevertheless they believe QE3 is unlikely although some do think extending the commitment to 2015 may happen.They are also watching the spread of MBS vs Treasuries and think the QE would only happen if the spreads started to widen quickly.We know none of this is going to stop you poring over every word of Bernanke’s speech later today, but worth noting nevertheless.
No comments:
Post a Comment