Bernanke At J-Hole: What He Will Say And What He Won't

Tyler Durden's picture

With Draghi stepping aside, the headliner can shine and while Goldman does not expect Chairman Bernanke's speech on Friday morning, entitled "Monetary Policy Since the Crisis", to shed much additional light on the near-term tactics of monetary policy beyond last week's FOMC minutes; their main question is whether he breaks new ground regarding the Fed's longer-term strategy. An aggressive approach would be to signal that the committee is moving closer to the "unconventional unconventional" easing options that Goldman has been ever-so-generously advocating for months, although even they have to admit that expectations are that any moves in this direction will be gingerly.

Via Goldman Sachs:

Another year, another wait for Chairman Bernanke's Jackson Hole speech. Just as in 2010 and 2011, markets are eagerly anticipating his appearance on Friday morning at 10am EDT for clues to what the FOMC might be planning at its September meeting and beyond. Today's comment discusses our expectations in Q&A form.

Q: Do you expect Bernanke to provide much additional information about the near-term monetary policy outlook. In particular, will he provide new information about whether the committee will embark on QE3, i.e. start another asset purchase program?

A: No. While we expect his speech to be consistent with a high probability that Fed officials will ease monetary policy further, this would not add much new information following the very dovish FOMC minutes released last week. The question of whether Bernanke will include a list of the easing options in his speech--which was very much on the market's mind in the run-up to the 2010 and 2011 Jackson Hole symposia--is also less important. This is because, unlike in 2010 and 2011, when the symposium occurred before the minutes of the August FOMC meeting were released, the August minutes have already been released and we already have such a list in hand this time. It includes (1) a lengthening and/or reformulation of the forward guidance, (2) a return to asset purchases and Fed balance sheet expansion, and further down the list, (3) a cut in the interest rate on excess reserves, and (4) a "funding for lending" program along the lines of that introduced by the Bank of England recently. If he chooses to go through this list again, we would expect him to hew closely to the formulation in the minutes, without a clear indication of the form or timing of any easing.

Q: So what will he say?

A: Recognizing that it is difficult to forecast free-form speeches, Bernanke's title "Monetary Policy Since the Crisis" suggests that he might take a broad "lessons learned" approach. If that is correct, here are a number of key lessons that might be included:

  1. Financial crises and housing downturns have large negative effects on aggregate demand. Therefore, monetary (and fiscal) policy need to be highly accommodative for a number of years to keep inflation from falling to undesirably low levels and to help reverse the increase in unemployment.
  2. Some well-worn rules of thumb of macroeconomics don't apply when the economy is stuck at the zero bound. In particular, even a very large increase in the central bank's balance sheet or the monetary base is not necessarily a harbinger of higher inflation. This is contrary to the predictions of many well-known economists back in 2009.
  3. The zero lower bound on nominal interest rates is a more serious obstacle to making monetary policy sufficiently accommodative than many economists--including Ben Bernanke--had thought prior to 2007. Although forward guidance and changes in the size and composition of the Fed's balance sheet can still provide stimulus, gauging the effects of unconventional easing is more difficult, and it therefore tends to be undersupplied relative to a situation in which these effects were estimated with certainty.
  4. Unconventional Fed balance sheet policies work mainly through the asset side (i.e. the so-called portfolio balance effects) rather than through the liability side (i.e. the amount of bank reserves in the system). In particular, the available evidence suggests that Operation Twist (which involved no lengthening of the Fed's balance sheet and no increase in bank reserves) seems to have been at least as effective in reducing bond term premia and easing financial conditions as QE2 (which involved both of these). This suggests that it was really the duration removal (which was broadly the same under QE2 and Twist 1) and therefore the portfolio balance effects that mattered.
  5. Sustained periods of high unemployment can result in "hysteresis"--a higher structural rate of unemployment and a decline in labor force participation. This complicates monetary policy. On the one hand, after hysteresis has set in, it implies less room for monetary easing than one might think on the basis of the pre-crisis output and employment trend; on the other hand, before hysteresis has set in, it implies an added benefit from accommodative policies, relative to normal times. (This point was a key theme of Bernanke's speech at last year's Jackson Hole symposium.)
  6. Inflation expectations are even more "anchored" than economists thought before the crisis. Despite a very large output gap, inflation has been fairly stable at levels only slightly below the Fed's 2% target. This provides a strong refutation of a simple "accelerationist" inflation model, in which this year's inflation is equal to last year's inflation plus a term that depends on the level of the output gap. This implies that there is less risk of outright deflation than one might have thought before the crisis. However, note that the anchoring of expectations cuts both ways; there is less risk of deflation, but also less risk of inflation if the central bank does oversupply monetary stimulus.

Q: How could Bernanke break new ground relative to these lessons, which he has discussed before?

A: The most obvious way to break new ground would be to open the door to "unconventional unconventional" easing, which could include a nominal GDP target or an Evans-style commitment to easy policies until the economy has regained a bigger share of the lost output and/or employment. The August FOMC minutes hint at growing appetite for this approach, saying that an extension of the rate guidance "…might be particularly effective if done in conjunction with a statement indicating that a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed."

A detailed discussion of unconventional unconventional easing by Bernanke is not our baseline expectation. The sentence in the minutes quoted above comes from a discussion by the full set of 19 "FOMC participants" (i.e., voters and nonvoters), which includes some known enthusiasts for such an approach--i.e., Presidents Evans, Rosengren, and Williams. However, if Bernanke did signal greater openness to unconventional unconventional easing, this would be quite a strong signal, not least because he described pushing inflation above target in a bid to speed up the recovery as "reckless" not too long ago. Such language would undoubtedly have a significant market impact.

Q: What is your current forecast for what the Fed will do over the next few months?

A: At a minimum, we expect an extension of the forward rate guidance to "mid-2015" at the September 12-13 FOMC meeting. We also expect an eventual return to QE, although in terms of timing we believe that either December or early 2013 is still more likely than September. There are two reasons why we have not changed this view despite the dovish August minutes:

  1. We do not read the minutes as definitive in terms of the form and timing of additional easing. With respect to the form, the FOMC clearly views a lengthening of the guidance as a form of monetary easing, so it is not the case that the phrase "…many members judged that additional monetary accommodation would likely be warranted fairly soon…" necessarily implies QE. And with respect to the timing, the term "relatively soon" presumably encompasses not just the September 12-13 meeting but also subsequent ones.
  2. The tone of the data has clearly improved a bit since the meeting. Our Current Activity Indicator now stands at 1.5% for July, vs. 1.1% in June. Moreover, we estimate that Q3 GDP is on track for a 2.4% annualized gain versus an advance estimate of 1.5% for Q2.

However, a return to QE in September is clearly possible if the upcoming data, especially the August employment report released on September 7, fall short of expectations or if financial conditions tighten again--e.g., in the wake of any disappointment around the European situation and the ECB meeting on September 6.

Jan Hatzius

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ZippyBananaPants's picture

Opening remarks "I'm an A-Hole"

LawsofPhysics's picture

Correct, besides ZIRP is fucking QE, just not for you.

SheepDog-One's picture

Well, NONE of the QE has been for us....unless maybe you get an unemployment check and an EBT card.

SheepDog-One's picture

And by 2013, 'hated whitey repub' will be the new bankster puppet, much to everyones shock and dismay.

lemonobrien's picture

dat obama nigga can still gets it up; and he likes to give away monies to people whos has monies.


Opening remarks "I'm in your A-Hole" Timma!!!

there fixed it for you.

Bartanist's picture

K3WL ... A-Hole at J-Hole. The ZHers are so clever to throw that fat pitch over the center of the plate.

strannick's picture

Bernanke and Wall St. are like a teen date. Bernanke wants to be listened to, the banks just want him to put out. So Bernanke batts his eyes and hints at favors in the future.

francis_sawyer's picture

Thank you Jan Hatzius for that insightful & relevant piece... Now if you can spare a moment or two, I'll give you a rundown on my thoughts on next years edition of DWTS...

stocktivity's picture

It's all Bullshit!

malikai's picture

Mmmm.. More delicious Goldman Propaganda.

Kayman's picture

Ben will be printing Bonus Money directly, secured by a "trust me" note. 

My old customer Av (an ex-Israeli) once asked me, "how do you say Fuck You in Yiddish ?"  He thrust his hand for forward and shook my hand and said "Trust me".

Jlmadyson's picture

Haha Fed /Goldman inflation expectations and consumer reallity possibly have never been wider.

Consumers do not buy the BS anymore with a 5-6% expectation going forward.

Just wait until Bernake prints.

And it sounds at least according to Fisher he isn't announcing anything this week. Maybe super secret meeting will change that.

Clearly Draghi has nothing.

Madcow's picture

Maybe he's going to say:  "There's nothing we can do to prevent 4 decades of deflation, deleveraging, default and economic depression.  People should dump their assets as soon as possible and flee the country.  Sorry folks - it was a pyramid scheme all along.  You got tricked fair and square, and now its time to move on.  Good luck and God's speed"



SheepDog-One's picture

I didnt get tricked at all, but I did get called a 'loonie anti-gubment conspiracy kook' for a couple decades.

LoneStarHog's picture

Suggestion, Bernanke ... try the Lindsey Williams approach ... you tell people to get a pencil and paper and write down what you say ... and ... you say the following:  "My name is Ben Bernanke and I am not only a fucking corrupt idiot, but the head stooge for the global Robber Barons"

Whoa Dammit's picture

"Sustained periods of high unemployment can result in 'hysteresis' ".

Is that what they are calling abject poverty these days?

Mercury's picture

Let this please be the new moniker for all such international, bankstar/central planning technocrats.

khakuda's picture

The August FOMC minutes hint at growing appetite for this approach, saying that an extension of the rate guidance "…might be particularly effective if done in conjunction with a statement indicating that a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed."

Let's call this approach a Greenspan, where we ride it over the top and stimulate for way too long until we get another bubble, which we shall aptly name a Krugman.

All this crap sounds like women's Olympic gymnastics.  "Ok, Bob, we have Ben Bernanke mounting the beam.  Remember, he completed a ZIRP and at least 2 QEs in the qualifying, along with 2 Twists.  He's now going to pull a Greenspan in the attempt to pull off the mother of all Krugmans for his dismount.  Oh wait, this routine has no dismount...ever"

daggoo's picture

>Ok, Bob, we have Ben Bernanke mounting the beam. 

Euphemism for getting buggered by Netanyahu.

SheepDog-One's picture

'Hi...I'm Beardman....and I'm a printaholic'

'HI BEARDMAN!' all the media in unison.

Rastadamus's picture

I still refuse to vote for Mitt Obama.

Meesohaawnee's picture

PT Bernake and the greatest fraud on earth will do nothing. and lets stop once in for all this utterly stupid discussion. Everyone is fucking tired of QE talk! you want to print and have 120 crude. Bring it on and then you can put a fork in obummers re election drive. Stock markets crash but the one thing that gets the sheep awake is 100 + crude.

RagnarDanneskjold's picture

The Fed needs to print $8 trillion to get the total credit/M2 ratio back to early 1980s levels. Maybe $1 tril a year for 8 years?

Also, Chinese local governments are going broke: Dongguan is Greece.

SheepDog-One's picture

And the early 80's was no fukin picnic either!

Spastica Rex's picture

Oh, I don't know - I really enjoyed listening to Joy Division and Bauhaus.


Starbucks was one little coffee shop, and not even the best one in town.

Nobody in Seattle cared what a "Microsoft" was.

Punk wasn't dead.

MDMA was legal.

As a young bohemian man hanging out at the University of Washington on his mommy's and daddy's dime, it was actually pretty much Shangri-La.


Jlmadyson's picture

"No do not take your money out of Bear Sterns they are totally fine."

Some amazing stuff they were feeding us back in 08.

But the stuff they are feeding us now it is on a whole new level.

Fun times ahead.

slyhill's picture

Your fully capitalized belong to us. 

dingoj's picture

well, this should the keep the markets on minimum hopium through September then?

if any bad data is likely to trigger QE, they'll play on the salivation effect as long as they can.

then, when finally QE hits, the rush will probably last through the elections.

this means no panic/volatility/bloodbath till sometime after the elections!

buzzsaw99's picture

They will say that they are trying to lower unemployment but it is just a ruse to boost maggot banker bonuses.

SheepDog-One's picture

I love how THIS JH speech is supposedly being waited anxiously on now just for for 'clues' as to what they'll maybe do in Sept.....last week this was 'the big dumper' for sure! C-17's dropping pallet after pallet of fresh $1,000 bills directly into the gaping maws of the central banksters and Wall St. 

Hype Alert's picture

Remember when a hurricane in the gulf was a real threat to the economy?  Especially in light of the damage of Katrina.  Now, everything is secondary to what one man says in EVERY speech he gives. 

Spastica Rex's picture

I wonder if this is a sign of too much power concentrated in one man?

Silly thought, I suppose.

God Save the Bernank.

adr's picture

While getting a very delightfull rimjob from Mr. Dimon I came to the realization that full on penetration with a very nice vibrating strap-on is much more pleasurable. Considering the ramifications of orgasming too early I decided to allow Mr. Blankfein to gently stroke my leg. This playfullness would lull him into a sense that I would reward his eagerness with a huge load out of generosity. With many options still on the table I believe that any number of actions can result in the ending I seek. Of course my pleasure is not of greatest importance, keeping my harem happy is my principal goal. For as long as I am happy, you shall be happy.

- Shalom Bernanke, Jackson Hole 2012

Atlantis Consigliore's picture

FED Video. Embarrass them with derision.  which one is Berflunky next to the other frauds? dancing?

hedgelessWhoresMan's picture

Benny's remarks, I'm an A-Hole in J-hole....blah blah blah blah more easing to come in september maybe, probably, very likely.

ekm's picture

The government controls:

- The government data

- The government central bank

Now, how the can the gov make a decision on data the gov itself misinforms the public about?


Bottom Line: They will do nothing until crude oil drops down to at least $60.

Once crude oil gets down to $60, then the Fed will ask for permission from its two new or incumbent bosses, WH and the House committe covering the Fed, as to what the next step would be.


The only thing that may trigger the gov to order the Fed to do something, would be something major happening in China or Russia on the military side.

Panafrican Funktron Robot's picture

2 inaccuracies to correct:

1.  We don't have a government central bank.

2.  The Fed doesn't ask for permission from the government to do anything.

ekm's picture


They are both accurate. On paper they might seem inaccurate, but in practice they are extremely accurate.

ekm's picture


They are both accurate. On paper they might seem inaccurate, but in practice they are extremely accurate.

Trichy's picture

Mr B. "I m gonna tear u another J-hole, punk!"

SheepDog-One's picture

'Dont give up HOPE people! Remember, theres always September!'

forwardho's picture

"Histeresis" A degenerative disease, characterized by the complete loss of historical perspective. Terminal stage exhibts total systemic collapse. Fatality rate once firmly established - 100%

JR's picture

In the days of Stalin’s Soviet, did the citizens hang on every word from the Kremlin’s updates on the progress of economic programs, Five Year Plans, etc.?  Probably not in that all information provided was false and the citizens knew it.

So, waiting for the Word from Bernanke, who exactly thinks that he’ll be getting true information? The truth is immaterial; the market is waiting for the Lie.

J-hole attendees -- from the world’s international bankers to their economist mouthpieces to the Goldman insiders and Fed owners -- are in control center, with more data than that available to the public. And with one huge advantage over the rest of us, they are looking at the true data and giving us the false data…  And manipulating it to reflect their advantages.

They came to pick up pieces of America's wealth.

SmoothCoolSmoke's picture

Wonder when the Criminal Elite get an advance copy of the speech?  About 3 pm Thursday?

Jlmadyson's picture

Chief Hilsenrath should have an advance notice out by 3:45 Thursday.