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Aug 31, 2012, 04.30 PM IST
In an interview to CNBC-TV18 Nick Parson of National Australia Bank doesn't expect Federal Reserve chairman Ben Bernanke to make any immediate announcement about quantitative easing, but will keep the hope alive at Jackson Hole meeting today.
In an interview to CNBC-TV18 Nick Parson of National Australia Bank doesn't expect Federal Reserve chairman Ben Bernanke to make any immediate announcement about quantitative easing , but will keep the hope alive at Jackson Hole meeting today.
"Bernanke is going to outline various options that the Federal Reserve faces. He is going to give an open ended commitment. But he will shy away from offering any details or any timeframe of specifically what and when it is going to be delivered," he elaborated.
Below is the edited transcript of Parson’s interview with CNBC-TV18.
Q: What's the expectation from the market from today’s event is it likely to be a non event and if yes what's the market reaction going to be?
A: The expectation more generally is that Mr. Bernanke is going to outline the various options that the Federal Reserve faces. He is going to give an open ended commitment that he will do what is necessary whenever it is necessary.
But he will shy away from offering any details or any timeframe of specifically what and when it is going to be delivered. Now, that led to some last minute nerves yesterday.
The way to think around this is for the markets instead of having a nice shiny new present to play with it is like rather having a gift voucher instead that you spend it at any point of time in the future.
That is ultimately going to trump any near term disappointment that we have got. So, he is going to give an open ended commitment, the initial reaction is likely to be one of disappointment. But when we reflect on it just a little while, we’ll see that it is going to offer some support to asset prices.
Q: You are not expecting the Fed to move immediately with any liquidity bonanza. The ECB you told us yesterday may cut rates but it can't do bond buying immediately. So do you think for 2012 any kind of liquidity gush is perhaps more or less ruled out from either of the big central banks?
A: I don’t think it is ruled out. Let’s bear in mind that we have still got fully four months go before 2012 finishes. If we go back to the 2010 meeting that we had in Jackson Hole where Mr. Bernanke effectively preannounced QE2, it was still not until the 4-5th November that year that the FOMC voted to implement it.
So, there was a three month delay which is preannouncement and its effective implementation. We are going to see something of a similar style today that we are going to see a preannouncement and there is still plenty of time for it to be implemented.
There is one other very important point to note on this and that is the politics surrounding Mr. Bernanke. We do know that one of the potential future presidents of the US has said that he will not reappoint Mr. Bernanke to a new term, that’s Mr. Romney.
Now, Mr. Obama therefore is the only one of the two candidates who could extend Mr. Bernanke’s term, if elected. So, we have got an alignment of both Mr. Bernanke’s personal interest to have a third term and the need of the presidential candidate to have some form of monetary stimulus.
If you look at it in that sense, if you look at the politics of the Federal Reserve Bank, you can see how it is in Mr. Bernanke’s interest to promise to crank up those printing presses as soon as possible.
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