The Federal Reserve has been aiming all it can to keep the economy going. If you have been following Fed policy for years it is fairly amazing to watch. That is true even if it is disgusting or tiring. When rates already get down to zero, it requires some serious creativity to create more easy-money strategies. Hence the term "quantitative" in the "easing" terms as you see now.
Ben Bernanke and Jeffrey Lacker are both speaking on Tuesday and these speeches could provide more insight as to whether last week's speeches were being used as a serious telegraphing effort or whether the effort was just post-election ';filler' commentary.
Last week we noted the use of triggers and "communication" efforts by the Fed per the prior meeting's Minutes. Effectively, it would be a telegraphing of new Fed action and policy based upon certain triggers occurring or thresholds being crossed in events. For instance, policy could be triggered instantly if unemployment started to rise again or if GDP goes into the red (or dangerously close). But what if the Fed gets much more aggressive and starts setting action based upon a myriad of individual economic reports which the market reacts to? Imagine if Bernanke sends $50 billion each time that a consumer confidence number comes out weak. Or pick any other economic reading like auto sales, retail sales, or home sales.
Bernanke last week said, "The Federal Reserve will continue to do what we can to support the housing recovery, both through our monetary policy and our regulatory and supervisory actions." And Janet Yellen spoke about this philosophically last week, but then the philosophy looked more real after getting the FOMC Minutes. When Mr. Bernanke commented on the use of triggers and communication it seemed as though more formal quantitative easing measures are already being considered. This is theoretically good for gold and inflation-adjusting assets, but most market participants seem to believe that the easing measures now and ahead will add less and less real benefit. Ultimately, that leaves the inevitable: finally just letting the next recession arrive and work its course.
We have not yet hung our hat on which actions the Fed would actually take. There are still many tools which can be used and now we have the election outcome showing that there will likely be no real policy changes of the last two years for the next two years.
We would not be looking for any major telegraphs of a definite QE4 this week but we would be looking to see if anything slips out. Jeffrey Lacker, the dissenting FOMC member, speaks at the Shadow Open Market Committee's Fall Symposium which is titled "The Fed's Monetary Policy Adrift" in New York at 9:00 AM EST. Federal Reserve Chairman Ben Bernanke speaks to the Economic Club of New York on Tuesday at 12:15 PM EST.
After speaking with traders, economists, analysts, money managers, and brokers for too long on this matter, it seems safe to not just ask about QE4. The real question is if this is just QE-infinity.
JON C. OGG
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