Global Economy Weekahead: World watches Bernanke as Ben eyes euro

Sun Jul 15, 2012 3:07pm EDT
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By Alan Wheatley, Global Economics Correspondent

LONDON (Reuters) - Federal Reserve Chairman Ben Bernanke serves up a new set of clues this week that might help solve one of the thorniest riddles for the world economy: what will it take to make the U.S. central bank ease monetary policy further?

Bernanke will present his semi-annual monetary policy report to Congress on Tuesday and Wednesday against a background of lackluster growth at home and a festering sovereign debt crisis in Europe that is increasingly preoccupying U.S. policymakers.

But investors will be lucky if Bernanke goes much further than the minutes released last week of the Fed's June 19-20 policy meeting. The central bank kept open the option of a third round of outright bond purchases, or quantitative easing (QE) in market jargon, if the economy took a marked turn for the worse, but appeared to set a high bar for such aggressive action.

"Right now the economic numbers are very mixed so I don't think Bernanke can make a clear, compelling commitment on QE at the current time," said David Hale, who runs a global economics consultancy in Winnetka, Illinois.

Growth might have been as soft as 1.5 percent in the second quarter, Hale said. But he also pointed to falling unemployment claims in recent weeks as well as a bounceback in auto sales and durable goods. Some forecasters were penciling in a pick-up in growth this quarter to an annual rate of 2.5 percent or 3.0 percent, he noted.

"So the situation is far too unclear," Hale said. "I think all he'll do is keep his options open and see what the economy looks like in September."

This week's batch of U.S. economic data is unlikely to tip the scales one way or the other.

The first regional industry surveys for July, from New York and Philadelphia, are forecast to show a modest improvement; retail sales for June are expected to have edged up 0.1 percent on the month; headline inflation in the year to June probably ticked down to 1.6 percent but economists see no deflationary risk that could push the Fed off the fence.   Continued...

U.S. Federal Reserve Chairman Ben Bernanke gestures during a news conference at the Federal Reserve in Washington, June 20, 2012. REUTERS/Jonathan Ernst