Bernanke to Cast His Vote on U.S. Economy at Jackson Hole

The global markets will be watching Federal Reserve Chairman Ben Bernanke on Friday morning when he gives his annual speech at the Fed’s retreat in Jackson Hole, Wyo., on the state of the U.S. economy.  His speech is highly anticipated because whether the Fed goes for another round of quantitative easing in this presidential election year is viewed as a vote on whether Barack Obama should remain in office.

Indeed, Bernanke’s speech will follow Mitt Romney’s Thursday night acceptance speech as the Republican candidate for president. As a result, the language the Fed chairman uses on Friday is sure to be analyzed even more closely than usual by market watchers.

So far, the consensus is that before the election, the Federal Open Market Committee will announce a third round of quantitative easing, or QE3, either at the FOMC’s Sept. 12-13 or Oct. 23-24 meeting.

“Tomorrow, Bernanke will go over more of the rewards than the risks of doing more quantitative easing, and that sets the stage for another rigorous debate at the Sept. 13 meeting,” said John Canally, investment strategist at LPL Financial, in a phone interview on Thursday. “I wouldn’t be surprised to see the Fed actually announces a new round of quantitative easing on Sept. 13.”

Expect to Hear the Words ‘Sluggish’ and ‘Slow’

However, Canally noted, the FOMC still has its Operation Twist Treasury program in place until the end of the year. In addition, the upcoming election might make the Fed think twice before making any big decisions, he said, but added that the Fed has raised or lowered rates in every single election year since 1968.

Canally expects to hear words such as “sluggish,” “slow” and “soft” in Bernanke’s speech.

“There’s been little if any sign of a sustainable or substantial improvement in the economy since Aug. 1,” he said. “It’s gotten better, but it’s not substantial. You can sustain 2.2% GDP growth, that’s fine, but the Fed’s looking more toward 3.0%.”