Investors and traders anticipated for Bernanke’s speech at the annual central bankers’ retreat at Jackson Hole. Markets around the world were jumping up and down showing uncertainty on the outcome of the speech.
It was the same meeting last year that Bernanke hinted on QE2. Investors and traders expected some good news in the form of QE3 but Bernanke disappointed them by focusing on housing issues. He merely said, “a range of tools that could be used to provide additional monetary stimulus” and “will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September”. The next FOMC will began on 20 Sep 11. Would QE3 be announced then? Is Bernanke deliberately delaying any monetary stimulus plan? Or is he facing problems getting approval?
Despite no hint on QE3, the US market went up subsequently. Does this mean that the stock market has already priced in the expectation prior to this speech, accounting for the large drop for the past few weeks? Or the Fed had concluded the economy did not need any stimulus at this moment in time, and hence, good news for investors?
I think we have paid too much attention to Bernanke’s speech. There are too many factors that could contribute to market movements and that is no way we can ever know every single one of them.
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