August 26, 2010As economy slows and Fed voices conflict, markets look to Bernanke for guidance
Bernanke to Deliver Economic Outlook
Federal Reserve chairman Ben Bernanke will offer his outlook on the economy (NYT) Friday amid fresh indicators that the U.S. and global recovery are slowing. Bernanke's speech, at an annual Fed symposium in Jackson Hole, Wyoming, will be his first public comments since the Fed announced it would invest the proceeds from the central bank's mortgage bonds into longer-term Treasuries to help the recovery. Bernanke may discuss the risk of deflation given the persistently high unemployment rate and low inflation level.
A major question is whether the Fed should take bigger steps to boost the economy by printing more money and buying more assets .Fed officials are split about whether declining demand, wages and prices merit additional monetary stimulus. The concern is that more Fed action would shake market confidence and eventually cause inflation. After news that sales of new homes in July hit an all-time low, Fed watchers await news Friday about whether the economy grew less than expected in the second quarter (WashPost).
Other central bankers, including the European Central Bank's Jean-Claude Trichet and the Bank of England and Bank of Japan, will attend the event to address their own monetary concerns about the global recovery (Reuters).
Analysis: In the Wall Street Journal, Chris Percell says if monetary policy isn't eased more, inflation could fall further. That outcome “would become even more likely if outside events, such as the euro-zone sovereign debt crisis, led to economic stagnation overseas,” he says.
On Roubini.com, Mark Thoma says Bernanke's reluctance to take his case about the course of monetary policy has to do with the democratic committee process he has tried to create at the Fed. But when there is considerable uncertainty, the Fed “needs to use the influence bestowed upon him.”
Background:
This Wall Street Journal interactive examines key themes from Bernanke's past keynote speeches ahead of his comments at Jackson Hole.
http://www.einnews.com/news.php?oid=mmyKIuJ3L/rZQA
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