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What the market wants is a clear road map for Fed policy. They want to be told definitively that the central bank will or will not ease next month. Unfortunately being straightforward has never been one of the Fed Chairman's strongest personality traits and hoping for a clear road map tomorrow may be wishful thinking. Yet the one situation where Bernanke could still drop hints about easier monetary policy is if they already agreed to ease monetary policy through something other than Quantitative Easing. One possible option would be to extend their low rates pledge beyond 2014 or to tie interest rates with economic data. Both of these options would mark an important shift in U.S. monetary policy and is less drastic than a third round of Quantitative Easing and cheaper than asset purchases.
However there are plenty of reasons why Bernanke could choose to remain elusive about monetary policy. While the world was surprised by how close the Fed was to increasing stimulus in early August, the economy has improved since then. According to the Beige Book, there are signs of life in parts of the U.S. economy and continued challenges in others. The lack of consistency in the U.S. economy is the very reason why Bernanke could choose to wait until the latest official Fed forecasts are completed and the next non-farm payrolls report is released before committing to any fresh policy changes. Also, having provided signals to major policy changes at the last 2 Jackson Hole Summits, Bernanke may want to move away from the expectation that Jackson Hole is a forum for announcing policy changes.
However there are plenty of reasons why Bernanke could choose to remain elusive about monetary policy. While the world was surprised by how close the Fed was to increasing stimulus in early August, the economy has improved since then. According to the Beige Book, there are signs of life in parts of the U.S. economy and continued challenges in others. The lack of consistency in the U.S. economy is the very reason why Bernanke could choose to wait until the latest official Fed forecasts are completed and the next non-farm payrolls report is released before committing to any fresh policy changes. Also, having provided signals to major policy changes at the last 2 Jackson Hole Summits, Bernanke may want to move away from the expectation that Jackson Hole is a forum for announcing policy changes.
Kathy Lien
Managing Director
BK Asset Management
295 Greenwich Street, Suite 281
New York, NY 10007
Direct Line: 1-917-538-6971
Fax: 1-925-887-4373
So what happened? Did Bernanke channel his inner ninja warrior and surprise us with an early reading of his speech? Did one of the rating agencies smack another European country with a credit downgrade? Did scientists discover that they’ve misread the Mayan calendar all along and that today is our last day on Earth? No, no, and I sure hope not. The major event that embroiled markets so much was that Slovakian Prime Minster Robert Fico mentioned during a televised news conference that, “I see a euro zone breakup as realistic as holding together, 50 to 50.”
http://www.fx360.com/?et_cid=21713729&et_rid=wallstreet1928@gmail.com
The Beige Book report provides the Federal Reserve with an updated assessment of how conditions are "on the ground" in each of the 12 Fed districts. It is an important report that should never be overlooked because it carries a lot of weight with the Federal Reserve and has significant predictive capabilities for GDP according to a number of studies. This in-depth analysis of the economy comes at an important crossroads in Fed policy. We know that job growth and consumer spending improved in the month of July but what we don't know is how broad-based the improvement has been and whether it has continued into the month of August. The Beige Book report should provide us with some answers and depending on the level of clarity, a reaction in the U.S. dollar. Aside from the Beige Book report, the second release of Q2 GDP is also due along with pending home sales. GDP growth is expected to be revised slightly higher and home sales are expected to rebound.
Kathy Lien
Managing Director
BK Asset Management
295 Greenwich Street, Suite 281
New York, NY 10007
Direct Line: 1-917-538-6971
Fax: 1-925-887-4373
