All eyes on Fed chairman Bernanke

The prevailing question in the US this week is 'What will Bernanke say?" Photo / AP
The prevailing question in the US this week is 'What will Bernanke say?" Photo / AP

The strength of US economic data out this week will shape views on what Federal Reserve chairman Ben Bernanke say at Jackson Hole, Wyoming, on August 31.

Since the minutes of the last Federal Open Market Committee meeting showed many members would support further monetary stimulus, the Jackson Hole retreat has loomed large as the next opportunity for Bernanke to say exactly what they were thinking and when it may happen.

But based on economist estimates, the Fed won't get much further ammunition to embark on QE3 this week. The S&P/Case-Shiller index of US house prices probably slowed their rate of decline to 0.3 per cent in June from 0.7 per cent while pending home sales, out on Wednesday in the US, probably grew 1 per cent in July after shrinking 1.4 per cent the previous month.

Consumer confidence for August slipped to 65.5 on the Conference Board Index from 65.9, a separate report is expected to show. US consumer spending for July, due out on Thursday, August 30, probably rose 0.5 per cent in July, in a resumption of growth that would be the fastest in five months, based on a Bloomberg survey.

The Dow Jones Industrial Average has been on an upward trend since bottoming out in early June. It finished on Friday in New York up 0.7 per cent. Yet it was still down 0.9 per cent last week as investors fretted about Europe's conviction in finding a unified solution to the region's debt crisis.

Greek president Antonis Samaras has asked Germany and France, the biggest economies in Europe, for more time to meet the terms of financial aid. But after the first meeting, German Chancellor Angela Merkel was vague, saying the answer to the region's crisis won't be resolved by a single action.

Bloomberg reported unnamed European Central Bank officials saying the bank may wait until Germany's Constitutional Court rules on its plan to buy bonds of indebted euro nations, scheduled for September 12.

That would push it beyond ECB President Mario Draghi's September 6 press conference following the Governing Council meeting of the ECB in Frankfurt and may prevent him offering much comfort to Italy and Spain, whose bonds would be among those bought.

Yields on 10-year German bunds ended last week at 1.354 per cent, the lowest in almost three weeks.

Whether Draghi can telegraph enough of a sense of optimism from the ECB will still be in the realms of speculation this week, though. In the US, there's enough economic data to update the health of the world's biggest economy.

Gross domestic product for the second quarter is expected to be revised to a 1.7 per cent pace from 1.5 per cent by the Commerce Department in a report on Wednesday in the US. The Fed releases its beige Book regional economic assessment on Wednesday.

"Consumers are still participating in the recovery," Michael Hanson, an economist at Bank of America Corp. in New York told Bloomberg. "Economic data has been too hot to get the Fed to jump in, but too cold to convince them that we're really in a sustainable recovery. The economy is struggling to get back up on its feet."

That all leaves 'What will Bernanke say?" as the prevailing question. St. Louis Fed President James Bullard last week seemed to dismiss the significance of the FOMC minutes as historical. But over the weekend, Chicago Fed President Charles Evans, a big fan of getting on with QR3, told CNBC in Hong Kong that there is "a lot of reason to do more".

Both Bullard and Evans are alternate members of the FOMC.

- BusinessDesk

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