QE3 Or Not, Something Will Happen at Jackson Hole
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There is a growing consensus building on Wall Street that Ben Bernanke won't announce QE3 on Friday in his Jackson Hole speech. In fact, today a respected 'think tank' said as much. In addition, speculators will point to the fact that there was no Federal Reserve plant with the Wall Street Journal's Jon Hilsenrath.
While conventional wisdom says there is nothing coming from Jackson Hole, the markets are saying something very different.
Treasury yields all along the curve moved up sharply, with shorter-term yields moving higher. Yields on 10-year Treasuries rose 5.8 percent, and yields the 30-year rose 3.9 percent.
Gold plunged nearly $100 per ounce, while stocks rose over 1 percent.
While some of the uptick seen in treasuries yields could be related to a better-than-expected durable goods number earlier, there is speculation bond buyers are positioning for an indication from Fed Chairman Ben Bernanke that he will change the composition of the Fed's balance sheet - moving out of shorter term Treasuries and into longer-term term ones. The plunge in gold today can be attributed to the fact that "operation twist", as the above action is being called, won't boost the Fed's balance sheet.
It should be noted that in his August 2010 Jackson Hole speech, Bernanke didn't announce policy action for the $600 billion bond buying program, or QE2, he just indicated this is a measure that can be used. Below are his exact comments from his speech:
A first option for providing additional monetary accommodation, if necessary, is to expand the Federal Reserve's holdings of longer-term securities. As I noted earlier, the evidence suggests that the Fed's earlier program of purchases was effective in bringing down term premiums and lowering the costs of borrowing in a number of private credit markets. I regard the program (which was significantly expanded in March 2009) as having made an important contribution to the economic stabilization and recovery that began in the spring of 2009. Likewise, the FOMC's recent decision to stabilize the Federal Reserve's securities holdings should promote financial conditions supportive of recovery.
The market did not get an indication the bond buying approach would be used until September 28, 2010 after Jon Hilsenrath’s article Fed Mulls New Bond Approach". And not til November 3, 2010 did the market get the official announcement from the Fed of the $600 billion bond buying program.
So while Bernanke discussed QE2 options at Jackson Hole 2010, it wasn't until later when we finally found out what QE2 would look like.
Investors could expect the same with Friday's Jackson Hole meeting. While the market won't likely get any announcement of QE3, Bernanke could layout a number of tools available to implement the added easing. One hint from Bernanke he will moving forward with QE3 may be all the market needs.
While conventional wisdom says there is nothing coming from Jackson Hole, the markets are saying something very different.
Treasury yields all along the curve moved up sharply, with shorter-term yields moving higher. Yields on 10-year Treasuries rose 5.8 percent, and yields the 30-year rose 3.9 percent.
Gold plunged nearly $100 per ounce, while stocks rose over 1 percent.
While some of the uptick seen in treasuries yields could be related to a better-than-expected durable goods number earlier, there is speculation bond buyers are positioning for an indication from Fed Chairman Ben Bernanke that he will change the composition of the Fed's balance sheet - moving out of shorter term Treasuries and into longer-term term ones. The plunge in gold today can be attributed to the fact that "operation twist", as the above action is being called, won't boost the Fed's balance sheet.
It should be noted that in his August 2010 Jackson Hole speech, Bernanke didn't announce policy action for the $600 billion bond buying program, or QE2, he just indicated this is a measure that can be used. Below are his exact comments from his speech:
A first option for providing additional monetary accommodation, if necessary, is to expand the Federal Reserve's holdings of longer-term securities. As I noted earlier, the evidence suggests that the Fed's earlier program of purchases was effective in bringing down term premiums and lowering the costs of borrowing in a number of private credit markets. I regard the program (which was significantly expanded in March 2009) as having made an important contribution to the economic stabilization and recovery that began in the spring of 2009. Likewise, the FOMC's recent decision to stabilize the Federal Reserve's securities holdings should promote financial conditions supportive of recovery.
The market did not get an indication the bond buying approach would be used until September 28, 2010 after Jon Hilsenrath’s article Fed Mulls New Bond Approach". And not til November 3, 2010 did the market get the official announcement from the Fed of the $600 billion bond buying program.
So while Bernanke discussed QE2 options at Jackson Hole 2010, it wasn't until later when we finally found out what QE2 would look like.
Investors could expect the same with Friday's Jackson Hole meeting. While the market won't likely get any announcement of QE3, Bernanke could layout a number of tools available to implement the added easing. One hint from Bernanke he will moving forward with QE3 may be all the market needs.
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