Bernanke Leaves The Door Open for Fed Easing in September
The Federal Reserve's Chairman Ben Bernanke left the door open to future Fed action in a speech at Jackson Hole, Wyoming on Friday morning. While Bernanke argued in favor of stimulus, he failed to lay out specifics.
Markets initially traded lower after Bernanke's remarks, as the Street may have anticipated a more specific speech. However, they quickly bounced as traders digested the full extent of Bernanke's comments.
Two years ago at Jackson Hole, Bernanke used the opportunity to layout the program that would ultimately become QE2. In the months that followed, markets rallied strongly, leading many to hope that a QE3 would have similar effects. Although the markets traded higher on Friday, the move may have been largely predicated on headlines out of Europe as speculation grew that the European Central Bank would initiate a bond-buying program in September.
Bernanke stated the Fed will provide additional accommodation as needed and that quantitative easing programs may have boosted output. He tempered his remarks somewhat by noting that the use of non-traditional policies was challenging and that a large boost in QE could lower market confidence in the Fed's ability to wind down its balance sheet.
The Federal Open Market Committee (FOMC) will hold its next meeting in the second week of September. At that meeting, the Fed could deploy QE3 or another easing program. They may also simply opt to extend their guidance, promising to keep rates low for even more extended period of time. PIMCO's Bill Gross recently put the odds for additional easing at 80 percent, highlighting the fact that many market participants are likely expecting more
The S&P 500 initially traded up roughly 9 points on Friday, near 1406, but fell back near 1400 after Bernanke's comments were released. Later, the S&P regained the 9 points.
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