Investors are pinning their hopes on market salvation stemming from Bernanke’s address at Jackson Hole, Wyoming this Friday. Many people believe he will take the time to introduce QE3 since he used the same venue to introduce QE2 allowing markets to rise above their present levels.
“As the week progresses, all eyes will turn to the Kansas City Fed’s meeting for central bankers at Jackson Hole….Since Jackson Hole was the place where Bernanke signaled QE2 last year, markets will look for any signal of a QE3 this time around. Expect to hear a sober re-evaluation of the outlook – which is clearly far worse than the Fed has been expecting – and for Bernanke to lay out the Fed’s possible options and their pros and cons. These include cutting the interest rate on excess bank reserves, and of course QE3, which wouldn’t necessarily have to take the form of a fixed dollar amount, but could be implemented at a variable ‘as-needed’ pace. Since Bernanke has to bring the FOMC with him on any policy change, and since inflation is higher than when QE2 was launched, we doubt that Bernanke will be quite ready to fire the starting-gun for QE3 this week. But we think that it is on the way.”
– Patrick Newport and Nigel Gault, Global Insight
Nothing can be further from the truth. Whether Ben Bernanke uses this venue to obfuscate the severe financial predicament the USA finds itself in, QE3 is certainly not the salvation investors think it is. The above quote can be found in the heads of many bullish investors, who still cling to the hope that the economies best days are ahead of it. While that may be true, it sure doesn’t seem like it. If Bernanke decides to enact some form of quantitative easing, the only beneficiary will be investors and that benefit will be short term. As the dollar’s devaluation will likely increase under a new quantitative easing program, the market will eventually catch up like it is doing now to this sort of program. The economy will buckle more and more as the Fed undertakes risky solutions only to please Wall Street.
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