Expect Nothing from Bernanke
The financial markets are eagerly awaiting what Federal Reserve Chairman Ben Bernanke will say tomorrow about monetary policy in Jackson Hole, Wyoming.  Our advice: don't expect any major announcement.  Bernanke will say the Fed "stands ready" to implement more measures to help the economy, but that's what he always says and it is just stating the obvious.  Calming words?  Yes.  But no major substance. 

The Fed already took major action a few weeks ago when it made a commitment to keep short-term interest rates near zero for the next two years.  This unprecedented move was made over the dissents of three members of the Federal Open Market Committee, and it places the "bar" for additional action much higher than is currently warranted.  There is no panic in the financial markets and core CPI inflation, which the Fed follows closely, is accelerating, up at a 2.6% annual rate in the past six months.  Core consumption inflation is up at a 2.1% annual rate in the six months ending in June, which is above the Fed's unofficial target range.

Meanwhile, this morning's data on unemployment claims undermined the case for a recession.  New claims for jobless benefits increased 5,000 to 417,000, but the Labor Department said at least 8,500 of this week's claims were related to the recent Verizon strike, which is now over.  Continuing claims fell 80,000 to 3.64 million, the lowest level since September 2008. 

By contrast, unemployment claims soared in the weeks following the Lehman Brothers collapse.  In the four weeks before the collapse, initial claims averaged 442,000 per week.  In the four weeks after they averaged 478,000 per week.  In the last four weeks, initial claims have averaged 408,000 versus 415,000 a month ago and 440,000 back in April/May, when manufacturers were dealing with supply chain disruptions coming from Japan. 

The large drop in continuing claims came in the critical "survey week" for the Bureau of Labor Statistics, when they gather data for the monthly payroll report.  As a result, we think it's more likely than not that payrolls surprise on the upside when that report comes out September 2.  At present, with one more week worth of data to come, we forecast a gain of 180,000 private-sector payrolls and 150,000 for nonfarm payrolls (lower than private due to a drop in government jobs).
Posted on Thursday, August 25, 2011 @ 9:14 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.