(Bloomberg News) Federal Reserve Chairman Ben S. Bernanke tomorrow may disappoint stock investors betting on a commitment to step up stimulus. He has little choice, given rising consumer prices and a U.S. economy that is still growing.
Gasoline costs are 33 percent higher, consumer inflation is twice as fast and inflation expectations are above levels since Bernanke signaled more easing a year ago at the annual Fed symposium in Jackson Hole, Wyoming. While the U.S. expansion has slowed, the Chicago Fed's index of 85 economic indicators improved in July for a third month on gains in production.
Policy makers, who said Aug. 9 they'll use additional tools "as appropriate," probably don't expect a recession or rapid disinflation, making a signal of bond buying premature, said Roberto Perli, managing director at International Strategy & Investment Group in Washington. Instead, Bernanke will probably detail options for further stimulus and clarify how much the Fed's reduction in its outlook this month stems from long-term obstacles to growth, said Keith Hembre, a former Fed researcher.
"Conditions are substantially different today" compared with last year, especially inflation, said Hembre, chief economist and investment strategist in Minneapolis at Nuveen Asset Management, which oversees about $212 billion. "First and foremost, that would be the reason I think that any sort of major asset purchase announcement is unlikely," he said.
Shipping volume at trucking companies, a barometer of the broader economy, was up 11 percent last month from a year earlier, according to Cass Information Systems. Echo Global Logistics Inc., a Chicago-based provider of freight services, said last month it's "very optimistic about continued growth in the second half."
Deflation Threat
The threat of deflation has subsided, with the Labor Department's consumer price index, minus food and energy, rising 1.8 percent for the 12 months ending July. It increased at a 0.9 percent 12-month rate in July 2010 before Bernanke's Jackson Hole speech last year.
A measure of inflation expectations watched by the Fed is showing that traders see annual price increases of 2.77 percent starting in five years, compared with 2.22 percent a year ago.
Even with the 12 percent plunge in the Standard & Poor's 500 Index over the past month, U.S. stocks are still up 12 percent from their level on the eve of Bernanke's speech last year, when they had gained only 1.6 percent from Aug. 27, 2009.
"The stock market is going to be disappointed Friday morning," Rob Dugger, managing partner at Hanover Investment Group LLC and a regular participant at the Jackson Hole conference, said in an interview on Bloomberg Radio's "The Hays Advantage."