Well, all the information is known prior to tomorrow’s speech from Federal Reserve Chairman Ben Bernanke. With today’s reports on jobless claims and personal consumption and expenditures, all the facts are known that will guide the chairman tomorrow. But don’t be surprised if we learn years from now, that it wasn’t the data that ultimately pushed the Chairman in one direction or the other on stimulus, but rather the speeches of others. Mortgage rates are improving this morning but I do not expect the improvement to last.
But let’s dispatch with the data first. Today jobless claims continued their recent trend of edging higher—up to 374,000 from last week’s upwardly revised (shocking) 372,000. This is clearly a sign of weakness in our economy, yet could suggest that US firms are erring on the side of caution given the uncertainty from the Fed, the elections, the impact of ObamaCare, Europe and the US fiscal cliff.
Also released today is Chairman Bernanke’s favorite data point—the Personal consumption and Expenditures report. He favors this report to guide him because it provides information on more than one leading indicator. The PCE report, as it is known, provides a read on inflation, personal income and spending all in one place. Today’s report provided all you could want—if you wanted to see more stimulus. Inflation was virtually non-existent despite personal spending growth outpacing personal income growth. In such a situation further stimulus from the Fed could be argued as likely having no impact on inflation.
However, I tend to believe that the Fed Chairman will be more influenced by factors other than economic data in making his decision and writing his speech for delivery at Jackson Hole, Wyoming tomorrow. Perhaps someday we will hear the Chairman say directly that last night’s speech by Republican Vice Presidential candidate Paul Ryan and tonight’s by the party’s presidential nominee Mitt Romney influenced his decision.
Chairman Bernanke has suggested in the recent past that the Fed had largely done its job and that it was time for fiscal reforms rather than more monetary stimulus. Last night’s words from Congressman Ryan and perhaps tonight from Governor Romney will assure him that the fiscal direction of the country will be at the very heart of the US presidential campaign. Knowing that, I suspect the Chairman will choose not to announce more stimulus tomorrow, but will be very clear about the circumstances in which he would act.
Don’t misunderstand—I am not suggesting that Chairman Bernanke favors the Romney/Ryan plan. He favors a series of solutions to our serious fiscal challenges, both short term (fiscal cliff) and long term (deficits, entitlement reform). But proposing stimulus now would be perceived by many as a sign he favors President Obama’s approach—and I do not believe he wants to leave that impression either.
Atlanta Federal Reserve Bank President James Lockhart may have given away the substance of Bernanke’s speech tomorrow when he said, during an interview this morning:
“If we were to see deterioration from this point, let’s say a persistence of job growth numbers that were well below 100,000 per month, or see signs of disinflation that could signal the onset of deflation, then there wouldn’t be much of a question about policy.”