Bernanke Can Disappoint Again in Jackson Hole

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As already discussed, there is a weak signal for every strong one in the US economy. Fed Chairman Ben Bernanke already said that QE programs have “diminishing returns”. This was followed by saying that non-standard tools shouldn’t be used lightly and that the tools have “some capacity” to help the economy – not very QE3ish.

Bernanke could use the annual Jackson Hole Symposium held at the end of August to float other ideas. One such idea is a program that will help small businesses, although it’s unclear what the Fed could do. Two years ago, Bernanke hinted about QE2 at this important meeting.

Another thing Bernanke already did in the past is pass the ball to the politicians’ court. He warned about the “fiscal cliff” several times. At the end of the year, many tax programs expire and unless politicians move to extend these programs or introduce new schemes, the US economy will suffer from automatic tax hikes and spending cuts – something that could hurt the economy if everything happens all at once.

It is reasonable to assume that politicians will find some kind of compromise after the elections in November. One of the things that will happen automatically is a cut in the defense budget. Politicians are already working to prevent this from happening, even before the elections.

This is somewhat surprising, as an overwhelming majority of Americans support big cuts in the defense budget.

Bernanke will not get into details about taxes or spending, but will likely warn about this danger, and the current uncertainty, that also inflicts some damage on the economy.

The motivation for QE1 was lowering long term interest rates. The motivation for QE2 was the threat of deflation. Deflation isn’t a danger at the moment, especially with recent US droughts and rises in food prices.

But even without deflation, could the Fed strive for higher inflation? More on that next time.

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Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

10 Comments

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  8. I guess that Jackson Hole is not the right place to announce QE3.

    If Ben release it finally, adding the excellent Republican convention in Florida, Obama will be KO 2 months before the elections so I think that today will down to 1.25 at least.

    Next week, maybe it will climb to 1.27 covering all today shorts and following the good news of Europe.

    We have important target resistances in EURAUD EURCAD EURNZD and there is slow possibility to cross them today, many indicators says bear for this pairs to keep the trends. Like you know the pairs are interwaves so if they go down, EURUSD will go too.

    1.26291 was the target for today, and for the current week. We will see the minimun for this week (after Ben speech) later.

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