Fed chairman Ben Bernanke's speech on Friday at Jackson Hole seems to mean different things to different people. He certainly didn't use the occasion to make a clear case for another round of quantitative easing – but he appears to have left the door open for such a move.
Initially disappointed by the lack of clarity, stocks sold off. By late-morning trading, though, they had come roaring back. The Dow Jones industrial average was recently spotted up more than 130 points or 1 per cent.
Here is how a few economists interpret Mr. Bernanke's remarks.
Avery Shenfeld, CIBC World Markets: "Is their more QE coming? The key word here is 'as needed.' There's nothing in the speech that says one way or another whether Bernanke views that test as being met for the September FOMC. We will hold to our call for no new policy action by the Fed until December, when the current term extension buying will be set to expire. At that point, we expect growth to be weak enough to justify a third round of QE, particularly if there has not been a sufficient addressing of the fiscal cliff issue by Congress."
Paul Dales, Capital Economics: "The upshot is that, together with the dovish minutes of the previous FOMC meeting, this is another clear sign that the Fed is ready to provide more policy stimulus. And the discussion of asset purchases and communication guidance in this speech suggests that QE3 and an extension to the Fed's zero rate pledge (to sometime in 2015 from 'late 2014') are the tools most likely to be used."
Stéfane Marion and Krishen Rangasamy, National Bank Financial: "Given that housing is now improving and the other two factors are outside the Fed's control, it's not surprising to us that the Chairman is remaining vague about QE3. In our view, instead of dispatching QE3 right away, the Fed may instead extend the timeline for interest rates to remain at zero, and if there's little improvement to the economy, dispatch QE3 as a last resort, perhaps late in the year."