The Fed Gathers in Jackson Hole

This week, the Federal Reserve gathers at its annual Labor Day weekend retreat in Jackson Hole, Wyoming. Investors all over the world are ready to hear news that could, just maybe, just possibly, be important.

But probably not.

Gary Alexander explains why Jackson Hole has become important:

During Bernanke’s speech at Jackson Hole on August 27, 2010, hefirst acknowledged that the pace of economic growth had been “less vigorous” than the Fed was expecting and that the pace of the U.S. job growth had been “painfully” slow. Bernanke also acknowledged that the Fed was surprised by the “sharp deterioration” in the U.S. trade balance. His solution was to revive 2008’s “quantitative easing” as “QE-2.” The market loved QE-2: The S&P 500 rose from 1040 on the day of Bernanke’s 2010 Jackson Hole talk to 1363 the following April – up 30% in eight months.

At Jackson Hole in 2011, Chairman Bernanke laid the groundwork for another monetary strategy called “Operation Twist.” Over the next few weeks, various Fed governors hit the road to explain and defend their $400 billion operation to artificially flatten the yield curve. The stock market also liked Operation Twist. The S&P 500 rose from 1099 to 1419 in the six months from October 3, 2011 to April 2, 2012. (A clear improvement in various economic indicators also helped!)

So if it made headlines the last two years, it most certainly will again this year? Well, I doubt it.

Under Bernanke, the Fed has become slightly more transparent. The central bank is still very opaque, but some rays of light have been allowed through.

The Fed has been surprisingly forthright about its intentions, and this time around, they seem pretty clear that more action will not be needed. In fact, most economic news aides the case for inaction. And let’s not forget that a general election is only weeks away so the Fed will try to avoid any signs of partisanship.

I’m not expecting much news out of Jackson Hole.

Posted by on August 30th, 2012 at 2:10 pm

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