Weekly Market Wrap Up, August 22-26, 2011

Bernanke Addresses Monetary Policy Makers At Central Bank Conference In Jackson Hole

Federal Reserve Chairman Ben Bernanke addressed a group of global monetary policymakers at the annual Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyoming on Friday. In this much anticipated event, Chairman Bernanke fell short of satisfying hopeful investors looking for positive market-moving news regarding the U.S. economy. Instead the Fed Chairman was reserved in stating the Fed’s future actions in regards to a potential third round of quantitative easing (QE3), a bond purchasing program that would be intended to stimulate the economy. However, Bernanke stated that the Fed had the necessary resources and was ready to provide support to the ailing U.S. economy: in other words, the Fed is open to a new stimulus program.

During the speech, Mr. Bernanke said that the U.S. economic recovery continues to be “modest” and is “much less robust than we had hoped”, but also mentioned that banks are healthier and are holding substantial amounts of more capital, and that the manufacturing sector was improving.

One of the reasons for Chairman Bernanke’s cautious statements towards enacting future QE3 measures was the onslaught of a changing economy and higher inflation. As of now, inflation remains above the Fed’s informal target rate of 2%. Bernanke said that he expects inflation to come down to or fall below 2% in the event that oil and world commodities prices move toward moderate price levels.

Bernanke also took time to address U.S. fiscal decision-making in Washington (partially eluding to the recent debt ceiling debate). He urged Congress to fix the budget deficit in a way that would not inadvertently hurt the economy and to make the “difficult choices” necessary to get the country’s fiscal house in order.

Stocks fell into negative territory almost immediately after Chairman Bernanke made his remarks, but rebounded shortly after. By mid-Friday morning, all three major stock indexes turned positive. Gold bullion (a safe-haven investment) rose after Chairman Bernanke said it was critical for the U.S. to reduce the unemployment rate; a major reason for this particular rise in gold bullion purchases was because investors were reacting to the perception of a pessimistic economic outlook by the Fed.

U.S. gold futures for December delivery also rose while silver fell.

On Friday, the Commerce Department revised its second-quarter GDP growth estimate from 1.3% to 1%. GDP for the first quarter grew by 0.4%.

– Shaun Hoyes


Article submitted by:  Shaun Hoyes of the Capital Markets Lab (CML). To learn more about the Capital Markets Lab (CML) please visit https://business.fiu.edu/capital-markets-lab/.

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The Capital Markets Lab (CML) provides students, faculty, and the South Florida community with unparalleled educational and technological resources relating to finance. By utilizing the most current financial research platforms available, students are given an opportunity to supplement academic theory with the real world analytical tools used by leading financial institutions. Visit us at http://business.fiu.edu/capital-markets-lab/.

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