Fed Chairman May Hesitate On New Monetary Easing
| by Michael Locklear
August 30, 2012 – Gold traders and investors are anxiously awaiting Friday’s Federal Reserve meeting in Jackson Hole, Wyoming to hear what Fed Chairman Bernanke has to say about the future possibility of a new round of monetary easing that has been fueling speculation and rising gold prices. Despite the hopes and prayers of quantitative easing supporters that the Fed may make another major move toward asset purchasing, serious questions remain as to whether or not they will get their wish.
Reports are emerging that inside the Fed board members are divided on what the best step for the immediate future may be. Currently the chairman does not have the votes to move towards quantitative easing now. Like an anxious swimmer dipping his toe and eyeing the waters, the Fed chairman and his fellow members have yet to decide if they’re going to jump in the pool.
Before last month’s meeting Fed watchers believed that monetary easing was more likely, however now the picture does not appear to be so clear. Recent gold price increases do indicate the speculation among gold investors is still high that a new monetary policy will come in. At the time of the meeting the Fed decided not to take any action at that time on additional quantitative easing and said only that they were closely watching how the US economy would continue to behave.
Since the overall economic picture for the United States seems to be improving, those in the know believe that it is unlikely that the Fed will move towards more bond purchases. In a note to investors on Tuesday, August 14 Goldman Sachs chief economist Jan Hatzius said that recent information on the condition of the US economy diminish the likelihood that the Fed would move to quantitative easing three come September. He further indicated that his confidence is high that the Fed would not move on a new monetary easing plan until near the end of the year.
Both the retail sales report and the unemployment numbers indicated in July that the job’s future looked better and the trade deficit showed a slightly more improved outlook. He also said that promising new numbers in the commodities market make the inflation picture a little less clear. In addition to Goldman Sachs, Bank of America -Merrill Lynch economist Michael Hanson indicated that the speed and make up of any monetary easing plan still needs to be defined and many questions remain. In his view the possibility of any quantitative easy in the very near future seems to be unlikely.
To make matters a little more confusing last week’s release of the FOMC minutes indicated a reflection on the part of some Fed officials to move toward a new round of monetary easing. Fed board members appear to be moving back and forth on their positions concerning future monetary policy.
In the absence of any clear picture of the Fed members intentions, market watchers are anxiously anticipating what the chairman will have to say in his speech at the Jackson Hole, Wyoming Fed retreat. Some experts believe that at least where the gold market is concerned expectations concerning the Fed’s actions are too high. Some believe that the speech may contain a lot of discussion on what the possible options are but in the end may not give any real insight into when the Fed may decide to move forward. Still others believe that Bernanke will clear up all the questions around what’s next and make it clear that another round of monetary easing is imminent. Even so the chairman may not describe in detail exactly what kind of direction any new quantitative easing may go or what form it will take.
As we still await the unemployment report for August which will be released on September 7, feelings are that the Fed is also waiting and they will use this information to make a further determination as to what course of actions they may decide to take. Some experts believe that the chairman will not make any decision until he’s had an opportunity to review these numbers.
Many economists believe that there is an improvement in the global monetary environment as a result of the European central bank President Mario Draghi announcement that he would do anything it takes to protect the euro. At the September meeting of the Fed there may be insufficient evidence concerning monetary outlook to persuade those members who are known to oppose any new form of monetary easing.
Since the Fed did not see any real justification to move towards further monetary easing in their last meeting it is hard to see what might prompt them to do so now. It is likely that the Fed will seek unity among the members before taking a new action towards monetary policy. Their chairman may be reluctant to play all of his cards now and some experts believe that other members are a bit puzzled as to what they could really do at this point to improve the monetary situation. It is most likely that their position will be to hold off and see how things go before taking any further action.
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