Federal Reserve Chairman Ben Bernanke will not hint at a third round of quantitative easing at the central bank's annual Jackson Hole, Wyo., summit this week, according to Medley Global Advisors, an influential research firm.
"Bernanke is not planning any new policy pronouncements at the annual Jackson Hole gathering, but he will reassure markets the Fed stands ready to continue deploying what is left of its tools to bolster recovery should recession risks increase," according to the report sent to clients Wednesday.
"While markets believe the language change clearly opens the door to another round of quantitative easing, the threshold for initiating fresh Treasury purchases — so-called QE3 — remains far higher than markets realize."
The S&P 500 fell into the red Wednesday morning in part because of this call from MGA, traders said. The firm was founded by Richard Medley, the former chief policy strategist to billionaire hedge fund manager George Soros, in 1997.
Stocks rallied Tuesday on expectations Bernanke, who speaks at the symposium held by the Kansas City Fed Bank at the end of the week, would signal "QE3" in response to recent weak economic data. At last year's summit, Bernanke gave his first hint that a second round of quantitative easing was in store, rekindling a bull market in stocks and other assets. The Fed would go on to buy $600 billion in Treasurys.
"The most common complaint inside the Fed system about any imminent new Treasury program is inflation risk," wrote Medley analyst Regina Schleiger, in the report. "While inflation measures across the spectrum remain mixed rather than threatening, some officials are also concerned about the inducement that 'QE3' would give investors to leverage up on risk."
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