Bernanke To Testify This Week (July 17th and 18th, 2012), Will He Mention More QE3 Or The Global Economy?
It’s not just an internal ‘fiscal cliff’ issue.
Ben Bernanke is scheduled to give his semi-annual testimony on the economy on Tuesday and Wednesday of this week. What should we expect? He is likely to say that conditions have deteriorated in the U.S. economy and we don’t expect much information about QE3. We do however expect the Chairman to utilize some signaling techniques he learned from his predecessor.
Ben Bernanke realizes monetary policy works best when it’s a surprise and his comments should be taken with a grain of salt – and pepper as he tries not to show his cards before a Senate panel Tuesday and the House Financial Services committee Wednesday.
Federal Reserve Bank Chairman Bernanke has been a much different leader than Alan Greenspan and he speaks in plain language. He has been more transparent and public relations capable than most before him, but one shouldn’t expect Mr. Bernanke to say what he would like to do. Some economists and analysts are focused on the ‘fiscal cliff’ or so called ‘tax armageddon’ but the Obama Administration and U.S. leaders aren’t alone. On a global scale, the world economy is worse of than it was last year and the U.S. has seen a full quarter of lackluster jobs growth with unemployment sticky around 8.2 percent.
Ben Bernanke may make statements regarding the global economy and its impact on the U.S. as well as possible cross/contagion effects. Here are a few things he might mention if he is really looking to do more easing soon:
- The U.K. is now in a double dip recession:
- Brazil is experiencing weakness – (BRIC) is turning to mud and Brazil lowered rates
- China is weak and has lowered rates as GDP has trended downward
- India is growing at a slower pace than in 2011
- Australia recently lowered interest rates and is experiencing economic weakness
- The Euro zone is in dire straits
We expect a dovish tone to his comments regarding inflation and world central banks have given him more room to claim that additional liquidity is needed. Keep in mind, the update from the FOMC meeting minutes of June 2012 were the worst we have seen in several meetings. We believe the Bernanke Put is still firmly in place. Republicans won’t be able to make the charge that he is manipulating the economy to have an impact on the election when the global picture is bleak. This could mean more easing sooner rather than later and we believe there is a 70 percent possibility the FOMC may move before the November 2012 elections.