Why The Fed's Upcoming Jackson Hole Economic Symposium Could Have Wide-Ranging Implications

Tyler Durden's picture

As another leg down to the economy is starting to be telegraphed by even the official data set, particularly in unemployment, and housing, and with industrial production slowing down, Goldman is once again beating the QE 2 "non-lite" drums. As such, all eyes turn to this week's Jackson Hole Kansas City Fed Economic Symposium (the same Kansas City where the sole dissenter to the Fed's ZIRP "bubbles4eva" policy, Tom Hoenig, rules over rational thought with an iron fist, even as other Fed intellectual midgets scribble pre-paid papers describing how stable the economy of soon to be bankrupt countries is). As we pointed out in the days following Hatzius' reduction in GDP estimates, the Goldman strategist was hoping for a $1 trillion QE announcement. The Fed decided against it, and the market sold off. Which is why at this very public Fed venue (and last) before the September 21 FOMC meeting, many will be focused on Bernanke's speech to see if he will telegraph the purchases of even more securities, which as Hatzius highlighted before, could include more "exotic" credit, including private label MBS, munis and even corporates. As Sven Jari Stehn says, "it will be worth watching whether Fed Chairman Bernanke will comment in
his opening remarks on the recent data disappointments and/or the
ongoing debate on the appropriate stance of monetary policy." And nobody is more concerned than Angela Merkel - now that the EUR has finally started to dip once again to the delight of an insolvent Europe, Germany will do all it can to keep the USD on its upward trend, as the ECB would prove much harder to manipulate into another round of QE. Or maybe not - all it would take is for Greece to be declared bankrupt again. Which is why the next big geopolitical instability cycle may start off anew depending on the first few sentences uttered by Bernanke in the August 26-28 meeting. And finally something quite odd about this year's meeting - as Bloomberg's Scott Lanman points out, the head of the FRBNY's trading desk, better known as the PPT, Brian Sack, is not invited to this meeting for the first time. We will keep a close eye on this very peculiar regime change.

One thing is certain: the ever more clamorous disagreement between the uber-Hawk (Hoenig) and the uber-money printing advocate (Bullard) is about to reach new heights.

More from Goldman:

Industrial Activity Set to Slow…

On the face of it, the stronger-than-expected performance of industrial production in July was good news. Following a decline in June, overall production was up 1.0% on the month, with manufacturing rising 1.1%. Output of motor vehicles and parts—which rose 10%—made a sizable contribution to this increase. While GM’s decision to operate most of its plants during the usual shutdown period in July was partly responsible for this, our calculations suggest that the effect was small (worth around 0.1 percentage point). The key question is thus whether this welcome surprise in industrial production is sustainable.

This week’s manufacturing surveys suggest not. The Philadelphia Fed’s headline index fell sharply into negative territory in August, and indexes for both new orders and shipments declined from already low levels. While the headline Empire index rose slightly in August, new orders and shipments also fell sharply into the red. The new orders components thus point to substantial slowing in industrial activity going forward. In this vein we expect a roughly flat reading for next week’s durable goods orders ex transportation.

The one positive aspect of these manufacturing surveys was that the inventory indexes fell. This suggests that the moderation in activity is not just driven by slow demand but by efforts to control inventory accumulation. Consistent with this, actual inventory data in June—including manufacturing, wholesale and retail—have consistently fallen short of expectations. (Together with a larger-than-expected trade deficit, these underlie our forecast for a revision of second-quarter GDP growth to 1.1%.)

…While Initial Claims Hit a New 2010 High…

Meanwhile, Thursday’s claims for jobless benefits underscored the dire state of the labor market. Initial claims rose to 500,000 in the week of August 14—a level not seen since November 2009. Furthermore, the total number of people receiving jobless benefits—including those on extended/ emergency programs—rose back above 10 million, not far from its all-time high of 10.7 million set earlier in the year. Although special factors such as the discharge of temporary Census workers or the renewal of the lapsed extended/emergency programs may have contributed to the run-up in initial filings, we do not think these distortions fully explain the increase in recent weeks, as discussed in yesterday’s Daily Comment. If they do, then claims should revert quickly to lower levels in coming weeks, as both distortions fade. Thus, the next couple of reports will be particularly important.

…And Housing Continues To Languish

This week’s housing data were not much better. Although housing starts in July rose in line with the median expectation (+1.7%, mom), the report was disappointing in that its composition was weak (single-family starts fell), data for June were revised down, and permits declined. Meanwhile, the National Association of Home Builders reported that builder sentiment dropped one point further this month, to an index level of 13. This is one more piece of evidence that excess supply is hanging over this market, preventing sustained recovery from a level of production that looks basically frictional in nature. In this latest survey, the assessments of future sales were mainly responsible for the drop. Consistent with this bleak outlook for sales, we expect large declines in next week’s new and existing home sales (-5% and -25%, respectively).

The Fed Could Act

A number of economists—including Fed officials—will gather in Jackson Hole for the annual Kansas City Fed Economic Symposium next week. In particular, it will be worth watching whether Fed Chairman Bernanke will comment in his opening remarks on the recent data disappointments and/or the ongoing debate on the appropriate stance of monetary policy.

Two themes have dominated Fed officials’ remarks on this debate in recent weeks. First, a number of regional presidents, most recently including Minneapolis Fed president Kocherlakota, voiced concern that the Fed’s current low interest-rate policy risks leading to deflation. While we agree that there is a non-negligible risk of deflation, we attribute this to the enormous amount of slack in the economy rather than the Fed’s low interest rate policy (which we think should be continued until at least end 2011).

Second, St. Louis Fed president Bullard reaffirmed his view that additional Treasury purchases may be warranted "should economic developments suggest increased disinflation risk." Skeptics of this view point to the mixed market reaction to last week’s Federal Open Market Committee (FOMC) decision to keep the Fed’s balance sheet constant through additional purchases of Treasury securities, as both bond yields and equities have fallen since.

Our analysis this week suggests that the Fed’s unconventional policies have been effective in supporting the economy through easier financial conditions. Our estimates suggest that financial conditions are around 200 basis points easier with the Fed’s asset purchases and the "extended period" language. This accounts for roughly half of the 450 basis points easing in financial conditions seen since the peak of the crisis has been due to the Fed’s unconventional policies. Moreover, the bulk of the impact seems to stem from the asset purchase announcements.

Given the short history on which these estimates are based, they are necessarily approximate. Nevertheless, they imply that the Fed still has the ability to boost the economy through easier financial conditions, even with a near-zero fed funds rate. This conclusion reinforces our view that the Fed will opt for more stimulus should the data continue to disappoint.


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Spitzer's picture

I am  not sure that Merkel is happy that the dollar is on an upward trend. I thought that Germany was part of the Euro/BIS crew that wants to outlive the  Dollar/FED.

So Cheeky Bastard really did call it quits eh ? Haven't seen him in a while

bookwurm's picture

maybe its time for zerotrolls.com "subscription only"

equity_momo's picture

But to outlive the dollar you have to crowd it out : much like Walmart selling goods at such skinny margins it puts smaller retailers in the neighbourhood out of business before they can control prices to their hearts desire (ie raise to inc margins when such times allow)

Beggar-thy-neighbour policies are going to intensify before the system is reset.

Spitzer's picture

according to FOFOA, the BIS wants to destroy the dollar and the Euro was designed to do that.

New_Meat's picture

No. 9:

and Milton Friedman knew that and said that the Euro won't stand.  I'm with that Friedman (and Rose).  Screw the other guy.

but it is a race to the bottom.

- Ned

Spitzer's picture

the dollar won't stand, the ECB marks is gold to market every 3 months. The fed has their tungsten marked at $45

M.B. Drapier's picture

I'm not sold on FOFOA, but it's no great stretch of the imagination to suggest that top people in Germany (and France - probably especially France - remember the old /franc fort/?) dream of bestriding the world with their strong reserve currency. But when you have a fragile export-based economic recovery, a big budget deficit, shaky banks and so on then big dreams are for another day. Maybe there are some Bundesbank types who would be willing to pull a Montagu Norman and trash the German economy to pursue strategic strong-currency goals. But Merkel's got elections to win.

Frank Owen's picture

ZH's "foil" also seems to be on a bit of a hiatus...

kathy.chamberlin@gmail.com's picture

cheeks and chindit my two most favorite, G O N E.

Frank Owen's picture

Cheeky's over in Europe somewhere... Kathy, I think you should make it your mission to go find him and convince him to come back. Start in England and make your way east - I am confident that you can do it! Spend every minute of everyday wandering the streets of Europe looking for him. It might take years but it will be well worth it. Good luck!

kathy.chamberlin@gmail.com's picture

yeah, f u c k   y o u , frank†

plus, i think he is dead.

New_Meat's picture

babe, you need those bold letters to be the thin ones. 'y know?

earnyermoney's picture

You can find him on Twitter. Prolific with the tweets.

kathy.chamberlin@gmail.com's picture

H O W?

i don't know Twitter or R U being¿

Übermensch's picture

Someone should fire a bunker buster into Jackson Hole. World peace should commence shortly there after.

zaknick's picture

No but if the CFR, Bilderbergers etc were also hit simultaneously, then we would have world peace and a new morning in America.


Glad to hear you mention the Bilderberger bums and the CFR. I've often ended my comments here at ZH with "PS: 911 inside job." I'm trying to get other posters to join me to tick off the neocon warmongers and SPREAD THE TRUTH even at the risk of being hauled off to Gitmo by the DHS.


PS: 911 Inside job


Mitchman's picture

You for got the Trilateralists.

fxrxexexdxoxmx's picture

PS: 911 Inside job ---- with the direct help and assistance of Bill Clinton.

New_Meat's picture

dude-hauled off to the tropical paradise of club gitmo?  You'd put on like 40 pounds in club X-Ray.  Speak any arabic?  How's your right hand vs. your left hand?

Please let us all know.

- Ned

Alexandre Stavisky's picture

Bankers love to meet in the high mountain area of Wyoming.  They love the subtle innuendo of meeting and agreeing to be "in the HOLE".  Afterall their whole scheme is to artificially stimulate the masses to produce while intermittantly, by dramatic and subtle moves, depriving them of their substance through printing and calculated market shocks.  To shift an overwhelming amount of the wealth of this planet from the highly productive and effecient over to idle and idolatrous classes is their whole object and aim.  Altogether an odious and detestable profession.


"The government could no longer issue sufficient notes – even with Havenstein’s lightening presses – to finance itself. Society started to break up. Farmers refused to sell their produce in return for what they called “Jew confetti” – an ominous portent for the future. Hungry townspeople went on raids into the countryside, slaughtering livestock, which they then carried off. More prosperous regions contemplated secession.

Fergusson shows how central to the social contract is trust in the soundness of money. Without it, the web of transactions upon which we all depend breaks down also. The result is total moral collapse."

I'm glad that the Allies defeated the Axis in the latest world war, and in doing so "saved the world for democracy".  Or should we say plutocracy.  It is telling that the confetti printers with the highest rank are Germans displaced millenia ago from Palestine who, again displaced, inhabit the capitals of England and colony.  No homeland but where forgery of banknotes has been sanctioned through corruption.  Now we enjoy the fruit of their labours within our own financial system.  Like a sotted apple enjoys its riddling of worms.

And while they sup and dine upon the back-broken dreams and efforts in their Broke Back Mountain resort, they may need to tremble at the righteous indignation of the coming backlash or liberty-loving yeoman.  And remember, in Jackson, of Jackson's wrath.

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves."

In a globe honeycombed with their intrigues and corruption, will there ever be another heimatsland in which to hide and fractional men rehatch fractional reserve while claiming high numerator, low denominator fractions of wealth?  And will they go willingly or be dragged, hogtied--kicking and screaming to the eternal hole which is their final and just unresting place?

merehuman's picture

Jew confetti'   once again .Coincidence, surely Bernanke will know the term

doolittlegeorge's picture

you started out so well.  i'm very disappointed with your ending.  i keep a copy of the last page of the Great Gatsby in my pocket which of course is the greatest written ending in the history of the English language.  Perhaps you should try that?

oklaboy's picture

Dow 11000 on Monday!!!

Robslob's picture

"as Bloomberg's Scott Lanman points out, the head of the FRBNY's trading desk, better known as the PPT, Brian Sack, is not invited to this meeting for the first time."

Me thinks this is because he will trading his ass off trying to hold up the bid less market when everyone figures out the Fed has lost control and confidence...even from fellow bankers?

cnbcsucks's picture

No doubt about it.  He needs to be around to juice the futures just in case one of those morons says something stupid...again.

My position for several months now is that there's no foundation (volume) holding up the house (market).  You now have have seasoned, well-heeled hedge fund managers throwing in the towel.  If two actually did it, you can bet there's 200 that are thinking about it. 


plocequ1's picture

Its simple. The Fed prints more money, The stock market goes up. What the fuck is so hard to figure out? Now go home and get your fucking Shine Box

MichaelG's picture

They're just busting our democratic balls.

DosZap's picture

Democratic Balls are CHIEFLY responsible for the exteded FUBAR we are in.

BHO's policies, and Agenda, have made sure of that.

b_thunder's picture

Sure, the sole purpsoe of the Fed is to distribute cash to mega-banks. 

Taking crap assets off their balance sheets, open front-running, asset bubbles.  How long can this go on?  QE does NOT help the economy (except for Wall & Broad, and Shanghai)

But guess what? GoldDamn likes that!  GoldDamn wants it that way!  And GoldDamn will get what it wants.

The QE has done nothing so far to help.   It prolonged the depression.  Would we rather have 18% U3 and 25% U-6 unemployment over 3 months and then start recovery, or 10% U-3, and 17% U-6  for 3 years?   Most people CAN survive for 3-4 months w/out a job,  they would not lose their house or their car.  But the Fed chose the latter, 3-4 years of 10/17% malaise.  In that timeframe very few long-term unemployed will survive financially.

Doing heckuva job, Ben!

What is needed is a sharp, quick and very painful retracement not jsut to the mean, but a significant "svershoot" to the other side in equities, and especially in RE.  THe faster the fall - the faster the "smart money" will step in to buy undervalued RE.  300 million people will be better off in the long run, but 300 thousand overleavereged bankers, hedgies and PE shops won't. . THe Fed decided to crush 200+million middle class, to preserve the wealth of the ultra-high net worth crowd.



traderjoe's picture

I agree with you - but since the Fed is PRIVATELY owned BY THE BANKS (yes, it's true), the Fed is just doing the bidding of its owners. I can't imagine why - well I guess I can - the US government has granted a monopoly power of credit/money creation to a private organization. So QE is just one more example of transferring wealth to the banks - in return for creating credit for free out of thin air, the Fed 'purchases' an interest bearing security paid for by the US taxpayers. 

DosZap's picture

The Fed Gv't is ALLOWING the Fed to do what it could never do..............

Destroy the country.

Without a shot being fired.

doolittlegeorge's picture

i never thought they could even start this process.  needless to say "it continues."

Caviar Emptor's picture

As another leg down to the economy is starting to be telegraphed by even the official data set

I'm glad it was put this way: All the talk of "Double Dipping" is actually an optimist's view. If we're in a depression (and some of us wholeheartedly believe we are) then we're talking about another cascading level down, without a recovery to its peak (as expected in a plain vanilla recession even with a double dip). Just like we're seeing now compared with 2007. 

Call it "de-leveraging", post-bubble deflation, or whatever, the point is the same: we're not in a recession or even a "double dip" recession because that implies a cyclic recovery of the pre-recession peak, followed by expansion. We're in a Depression, a crumbling economy with a downward vector. 

But expect no accommodation from the Fed until it's too late. Bernanke and the Fed governors spent an entire career studying how to short-circuit and prevent a depression by riding in on a white horse with the Fed cavalry and wagon trains full of "liquidity". After flinching and not really perceiving the magnitude of the crisis he got religion and deployed "The Plan". The black swan here is that 'The PLan" is ineffectual. Nobody in the hallowed halls of U. Chicago ever expected that one, and it will shock them. The response at that point is as uncertain and unpredictable as would be the response to aliens landing in Central Park. Prepare for growing malaise and anomie.

Cpl Hicks's picture

"We're in a Depression, a crumbling economy with a downward vector."

I really do not like your analysis because it seems to be both very pessimistic and very accurate.

"The black swan here is that 'The PLan" is ineffectual."

I hope somebody up there has at least a vague understanding about what's ahead for us and has at the very least a few baby steps of a plan mapped out that won't make things worse.

Caviar Emptor's picture

I hope somebody up there has at least a vague understanding about what's ahead for us and has at the very least a few baby steps of a plan

Well that would pre-suppose that they could consider for one moment that their world view might be wrong. That would mean that for at least a moment they don't consider themselves "Masters of the Universe", "Leaders of the Free World" and smarter than the previous bunch of academic economists and politicians who failed. 

And that's on the likelihood scale of GOP not screaming for tax cuts or Dems not wanting stimulus. You see, we're still in a time period where dogma comes before all else. And clinging to dogma the hardest is rewarded by the electorate. 

DosZap's picture

There's absolutely no doubt in my mind, we have been in a Depression, there's never been one damn SIGN of a recovery, and we are moving into part Deaux', of the worst clusterfxtrt, this country has ever seen.

Dr. Sandi's picture

The response at that point is as uncertain and unpredictable as would be the response to aliens landing in Central Park. Prepare for growing malaise and anomie.

I think I'd rather prepare for aliens landing in Central Park. At least that's something that I might be willing to believe is actually happening.

Or at least I might believe it if I don't see it happening live on TV.

I feel so immersed in lies anymore that I can't even buy into what I see in my own mirror.

doolittlegeorge's picture

"what's your vector, victor."  "That's a roger, Roger."  "That's an Ouvere, Under."  Who?  What?  Huh?

RobotTrader's picture

There will be nothing substantial discussed at Jackson Hole.

What ever the plan of attack is, it has already been decided, and will be announced or implemented at the absolute worst time for the bears.

It will be the same old, same old schedule in Wyoming:

Early Morning:

Shit, shower, and shave

Late Morning:

Round of golf


Served by exotic, foreign beauties

Early Afternoon:

Play cards, watch SportsCenter

Late Afternoon:

Massage session provided by 17-year old Asian girls


Dinner, drinks, more card playing

Late Evening:

Sex with your choice of escort, any race, color, stripe, or ethnic origin.

Frank Owen's picture

Sex with your choice of escort, any race, color, stripe, or ethnic origin.

You're implying little boys aren't on the menu?

Marley's picture

You forgot the sheep, dogs, goats, and ducks!

Dr. Sandi's picture

You forgot the sheep, dogs, goats, and ducks!

Maybe one of them will thoughtlessly boink a black swan and send us off to the races.

New_Meat's picture

thank gawd no pigs on the menu.

Eally Ucked's picture

Escorts, boys, goats, whatever, I hope they will overdose on Viagra and wont be able to show-up in public for at least few weeks.