Bartiromo - Investor Brief, Dissecting Bernanke’s Speech

Monday, August 29, 2011

In This Week’s Brief
•Economic Report Card
•Maria’s Most Popular
•Poll: Will Unemployment Improve?
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Even amidst earthquakes and hurricanes, all investors could focus on last week was Fed Chairman Ben Bernanke’s speech at the Kansas City Fed conference in Jackson Hole. At last year's meeting, Bernanke readied the market for QE2. There are a lot of mixed feelings on Wall Street about whether a QE3 would be good for the economy and markets or not, but most people agreed that Bernanke had to let people know the Fed isn't walking away from the current economic challenges.

Despite an initial drop right after his speech started at 10:00 ET Friday morning, the rest of the day’s action seems to indicate the market was at least comfortable with what it heard. Bernanke announced that the Fed’s next scheduled meeting in September will be expanded from one day to two, at which point the governors will decide whether they need to step in with additional steps to try to spark growth. He again said the Fed will do all it can to restore growth and employment. But if you were expecting him to announce, or even strongly hint at, what he and his fellow Fed Heads might do, you were disappointed.

Also notable were Bernanke’s warnings to Congress and the administration that many economic policies are outside of the Fed’s purview, that they should consider the “fragility of the current economic recovery” when formulating deficit reduction plans, and that a repeat of this summer’s debt-ceiling debacle would likely hurt the economy.

In fact, he went so far as to say that if Congress and the administration take the right steps, he believes strong employment and growth should return. He also said he’s confident the recent recession and financial crisis did not permanently damage the U.S. economy. Within a fairly short time, the markets had regained their lost ground, and it’s clear that September will be a pivotal month.

I continue to hear from many business leaders that until Washington develops a clear plan on how to move the economy forward, especially regarding trade and tax policy, there is little incentive to expand businesses. The Fed now seems to be expressing that opinion as well. It is up to Congress and the White House at this point.