Federal Reserve Chairman Ben Bernanke’s Jackson Hole comments on whether the government will aggressively pursue more quantitative easing to stimulate the economy are still being mulled over by the markets.
Bernanke once again hinted at the possibility of more stimulus, while saying he supports it, and that, if they have to, the government will really do it. Really.
It’s a self-fulfilling prophecy. So much uncertainly surrounds the vague, ambiguous comments on quantitative easing that, eventually, the government will need to stimulate the economy to undo all of the uncertainty created from using vague, ambiguous comments.
As expected, the markets spent the extended weekend trying to figure out exactly what the Fed chair means. As expected, market players could not reach a consensus.
FTN Financial called the comments hit or miss. One on hand, Bernanke seems to suggest a willingness to implement QE3. On the other, Bernanke seems to view the process as more powerful in the long-term, and offered little in the short term.
It’s left the market unsettled.
“A nebulous target would confound traders accustomed to arguing about the size and length of QE in determining their strategy,” said FTN analyst Jim Vogel. “Global investors in particular would be unsettled.”
An article in Investment Week (U.K.) argues that QE3 would likely impact equity markets unevenly. The headline is somewhat alarmist, however, saying:”Markets vulnerable to ‘large correction’ if QE3 flops.”
The use of QE3 is meant to stabilize markets. Yet it’s the talk about it that helps keep the markets uncertain in the meantime.
