Ben Bernanke is making a speech on Friday – have you heard? Of course you have. The Federal Reserve chairman’s keynote at the annual Jackson Hole, Wyoming confab of central bankers, Fed officials and economics geeks of all kinds has already been the subject of abundant speculation and conjecture.
But for all the attention surrounding the speech, Bernanke isn’t actually expected to use the opportunity to do or say anything dramatic. Of course, whatever he says will matter, simply because he sets monetary policy for what is still the world’s single largest economy. But in contrast to 2010, when the Bearded One used the occasion of the Jackson Hole conference to flag his interest in a second round of monetary stimulus, few except the most hopeful expect him to repeat himself and extend a promise of a third round of quantitative easing.
Not that QE3 is impossible – or even as unlikely as it appeared to be only a few months ago. Despite signs of a stronger housing market (reaffirmed by Tuesday’s update of the Standard & Poor’s Case-Shiller index, which signaled housing prices were back at their highest level in two years), there are relatively few other signs of the kind of economic strength that would make some kind of stimulus inconceivable. Retail sales are growing at a slower pace than they did last year; the Conference Board reported yesterday that consumer confidence in August fell to the lowest levels since November 2011, with those consumers fretting about future increases in the price of food and fuel as well as the perennially lackluster job market.
In that context, it’s likely that Bernanke’s speech will touch on some familiar themes. In the absence of an announcement of QE3 or some other significant stimulus, Fed watchers likely will simply add his comments to those he and fellow Federal Reserve pundits have made over the course of the last several months. There’s no game-changing event likely.
What could have been a game-changer – at least in the eyes of the financial markets – might have come from Mario Draghi, president of the European Central Bank. Although not scheduled to be put in the spotlight as a keynote speaker, Draghi was to join a panel discussion on Saturday, only a few days before a meeting of the ECB’s governing council. That is, until he canceled his trip to Jackson Hole altogether, apparently deciding that the benefits of fresh mountain air weren’t worth the costs of taking time away from his office at such a critical point, or the risks associated with having his every idle comment parsed for hidden messages about the state of affairs in Europe.
It’s understandable that Draghi would want to stay close to home as ECB policymakers hammer out the details of their own bond-buying initiative – in this case, aimed not at stimulating the European economy but stabilizing it by cutting the crippling borrowing costs facing the Spanish and Italian governments. Draghi and his colleagues are tiptoeing across a chasm on a tightrope; with national governments in the Eurozone squabbling over what to do and how to do it, the ECB has been pushed to take a primary role in limiting the immediate crisis, even in the teeth of opposition from Germany’s Bundesbank.
Europe increasingly is the focus of global anxiety and uncertainty, making any quasi-public comments from Draghi exponentially more important than they would have been only a year ago. Europe’s woes are taking a toll on global growth, even among formerly high-growth emerging markets like China. Within the United States, where the second quarter earnings season has just drawn to a close, one company after another has blamed Europe while cutting its earnings forecasts for the rest of 2012 and into 2013.
That kind of uncertainty would have made any comments by Draghi of greater significance in the eyes of market participants than anything that Bernanke is likely to say. Bernanke’s past speeches, those of other Fed officials and the minutes of past Fed meetings mean that we have a reasonably clear perspective of where the Fed stands – especially when that is compared to the murky outlook for Europe. So the Jackson Hole conference may now be less intensively watched than it might have been had Draghi broken away from his office and set off for Wyoming.
That doesn’t mean anyone can head off to the beach or the mountains early on Friday and just ignore the speech altogether – any speech by the Fed chairman is important, by definition, and there is always the chance he’ll say something dramatic. But what is likely to have a more lasting impact on financial markets are the data – ranging from yesterday’s consumer confidence numbers and the housing price indicators to next week’s jobs report for August – that Bernanke and his fellow Fed policymakers will use to make their decisions. Markets may twitch in response to Bernanke’s comments, but only fresh news from Europe or a fresh batch of economic data is likely to make those moves significant.