Ben Bernanke's speech at Jackson Hole will decide on QE3 and the fate of gold, stock markets

Business

oi-Shoaib MD

By Shoaib Zaman

Published: Thursday, August 25, 2011, 16:33 [IST]

Most analysts and many investors are expecting that the Federal Reserve Chairman, Ben Bernanke will announce a third round of quantitative easing (QE3) when he presents his speech at the Jackson Hole meeting on Friday, August 26, 2011.

The quantitative easing means that the Federal reserve will buy more of the debt from the market. This will reduce the number of debt but to do so, the Fed will be printing dollar. This will increase the supply of money in the entire system, that in turn will fuel inflation.

Although current data on inflation in US and weak jobless data will act as a deterrent for the Federal reserve. Chief economist and investment strategist in Minnepolis at Nuveen Asset Management was quoted by the Bloomberg wire services stating that the chances for a any sort of major asset purchase announcement is unlikely because the conditions are substantially different now, in 2011, than it was in 2010 when QE2 was launched or in 2008 when QE1 was implemented.

One of the regular participants of the Jackson Hole conference Rob Dugger told the wire service agency that the Stock market is likely going to be disappointed.

Robert Buckland, global strategist at Citigroup has said to a media channel that the announcement by Federal Reserve on QE3 will be positive for sentiments as well as for global markets.

VIEW: Well all three options are on the table for the Federal Reserve Chairman, Ben Bernanke and none of them is good.

He could announce a new QE3, in which case inflation and the prices of commodities will see a new high courting trouble for other central banks.

The second option could be, there is disappointment on the QE3 front as the Fed does not do anything. Here in, the gold price will start their up-trend once again, stock markets will fall.

Then there is also a possibility that Chairman Ben Bernanke does not make any significant announcement but he gives a forward looking statements which can booster the sentiments of the investors and the stock market. This could be similar to the one that the Fed announced on August 9, 2011, that interest rates will be maintained at current levels for the next two years, until mid-2013 to support the economy. (Read: why Fed will not increase the interest rates?)

This may or may not work for long. Forward looking statements will yield short-run results but it will not affect the long-term view.

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