They expected something special. They expected a speech which would set the stage for another round of quantitative easing. They expected a speech which would yank the US back from the brink of recession again.
In the event, what investors got was, well, a disappointment. It might be worth asking whether they expected too much. Ben Bernanke, whose speech at Jackson Hole was the big focus today, is a professional economist, and in the end the Federal Reserve Chairman’s speech was very much that of an economist.
Take the central paragraph everyone is focusing on – the one which debates whether more QE is necessary: it reads like a typical on-the-one-hand-on-the-other-hand statement from a Princeton professor:
Nontraditional policies have potential costs that may be less relevant for traditional policies. For these reasons, the hurdle for using nontraditional policies should be higher than for traditional policies. At the same time, the costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.
In other words: maybe we will, maybe we won’t. He’s said words to that effect before, and that wasn’t what investors wanted to hear. But the truth is that there are rarely ever die-cast promises of action in these Jackson Hole speeches.
The symposium in which the central bankers are meeting is a self-consciously academic one. Even in the case of the famous 2010 speech which pre-figured full-blown QE in the US, the reality, that the Fed was likely to act and start buying up government debt, only started to dawn in the weeks and months after the speech. It was only in retrospect that the speech took on such an aura of significance. Indeed, the coverage at the time betrays some uncertainty about what the Fed would do next.
So it’s by no means assured that the Fed won’t necessarily act in the future. And there are some firm words in the speech about the threat of unemployment, which is “a grave concern”. However, the concluding lines, which might have been expected to provide the most guidance about what to expect next, were a little weaker, if anything, than the latest Fed minutes:
Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
No bazooka there, I’m afraid. But then when it comes to central bankers, remember they like to conceal their weapons until the last possible moment.
This article is also available on the Sky News website.