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Chairman Bernanke’s speech in the morning at Jackson Hole probably will keep some Wall Street participants away from the Hamptons for a few extra hours Friday. Last year he used the speech to announce QE2. Here are a few things to think about as Ben goes to bed in advance of his 10am ET comments:
- Dissent is confining: A couple weeks ago, when the Fed announced its two-year interest rate policy, there were three Federal Reserve Bank presidents who dissented. This is the first time three negative votes on an FOMC decision occurred since 1992. This is even more remarkable because the 12-person committee was short two governors, so the chairman had only 70% of the votes. Many FOMC decisions are unanimous; the average share of votes is above 90%. The article I linked suggests Bernanke may have decided to go bold and ignore the usually more conservative regional bank presidents. I think it is possible instead that the two-year-freeze was a compromise from some more radical plan, and Bernanke is near the limit of his discretion. The minutes of the meetings are detailed, but we won’t have them for another couple of weeks. 5 years from now, we’re going to pick over the transcript of that meeting to see how big a battle it was. (Yes. 5 years.)
- The bully Ben-pulpit: The WSJ is speculating that Bernanke would turn attention to the need for Congressional and executive action, that the Fed’s ability to deal with sour labor markets, moribund housing markets and crippled financial markets can only go so far. Traditional fiscal policy — the Keynesian pump that Peter slammed yesterday — has been assisted by the Fed’s willingness to push interest rates down. It would not be the first time Bernanke has begged Congress to get spending under control. But he’s been quiet so far on the Budget Control Act and its efficacy, and this would be a good opportunity for him to do so.
- Look at the dais: The roster of speakers for this conference contains a number of experts on developing country growth, and is pretty much devoid of strong free-market speakers. The KC Fed, which hosts the conference, is led by noted inflation hawk Thomas Hoenig, who didn’t have a vote at the FOMC but almost certainly would have dissented. This will be his last Jackson Hole as president (retirement at 65 is mandatory) and if Bernanke steps out on monetary policy the microphones will go immediately to Hoenig. Watch for his quote.
- I know a number of Democrat leaders in Congress want to see us do something about exchange rates and China. I do not think he’ll say too much about this, though he has said in the past that if other countries are overheating because of dollar policies they could use their own monetary policy to deal with that. I’d be surprised if he said even that much.
I do not expect a lot of news to be made tomorrow. Bernanke risks a full revolt on the FOMC if he tries to push QE3 on his own; the best he has been able to offer has been to try to push down long-term interest rates. If he goes to talk instead about Congress, it may be read that the Fed no new ideas … or just that Bernanke’s new ideas don’t have enough support for him to risk offering. If he does announce something new in monetary policy, Bernanke will have broken a precedent in running a Fed that lacks a consensus, and going it alone.
P.S. A post-posting scan of the news shows me some nasty things happening in Greece. Bet that Bernanke saves comment on it for Q&A, but if the reporters are on the ball it should be the first question.Published in