Bernanke might not take the plunge

Ahead of a crucial speech, Federal Reserve Chairman Ben Bernanke may not be ready to take the plunge into a large-scale asset purchase program the central bank has admitted is under consideration.

That’s because he has yet to forge consensus of fellow policy makers that more purchases make sense.

“He doesn’t have the mandate to unveil or drop huge hints about quantitative easing,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

For the past month, the Fed has been “like a diver eyeing the pool from the edge of the diving board, but can’t seem to get themselves to move,” Anderson said.

The market’s expectations about Fed policy has veered in recent weeks.

Prior to the central bank’s last meeting on July 31-Aug. 1, economists thought the Fed would ease.

But Bernanke & Co. took no action other than to say they were “closely monitoring” the economy.

As incoming data seemed more upbeat in the days following the decision, many Fed watchers said they thought the Fed would hold off from further easing in September. But then last week, the minutes of the Fed’s meeting showed that “many” Fed officials were poised to ease.

Fed officials have been “all over the place” about monetary policy, said James Glassman, economist with J.P. Morgan Chase.

In light of the confusion, all eyes are on Bernanke’s remarks at 10 a.m. Eastern on Friday morning from the Fed’s summer retreat in Jackson Hole, Wyo.

“Our sense is that too many people are going in expecting too much from this speech,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets.

He said he expects a speech “that’s long on talk about the options and short on timing.”

Allen Sinai, chief executive officer of Decision Economics Inc., said Bernanke will make it “crystal clear” that the Fed is going to embark on another round of easier monetary policy.

But the Fed chairman will not specify during his remarks what kinds of easing will be forthcoming.

“I don’t think he will rule QE3 in or out,” Sinai said.

This might cause some disappointment to financial markets but it should be minimal given Bernanke’s pledge to act, Sinai added.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell