httpvh://www.youtube.com/watch?v=dXoj5B6AKkQ

So here we are. Today Fed Chairman Bernanke gives his long awaited speech on “Near and Long Term Prospects for the US Economy” at 3pm BST. This is the speech that will guide markets for the rest of the year and will likely set out the monetary policy strategy for the United States for the next 12 months.

I doubt we will see the launch of a new round of quantitative easing when Bernanke speaks this afternoon. The most probable outcome is an outline of the policy options available to the Federal Reserve and the assertion that the Fed is closely monitoring the situation and will act as necessary. The main reason for this doubt is that inflation in the US is higher by around 0.8% than it was this time last year when QE2 was announced and is now above the Fed’s ideal level. Market reaction will be crucial and the belief is that, even without a pledge of further asset purchases, markets are in for a rally with risky assets charging onwards. We are skeptical of this and think that any upward move will be snuffed out quickly.

Speaking of central banks, Martin Weale (Bank of England Monetary Policy Committee member) came out and stated that he does not believe there is a case for further quantitative easing in the UK at the moment. He went on to say that while the economy is weaker than the Bank would like but we are nowhere near the precipice that was the mid-part of 2008. There is the likelihood that the BoE could do more if there is a further weakening of inflation. Weale was one of the MPC members who voted for an interest rate rise as recently as July and so this statement had little influence on the pound. It is useful however to see that the interest rate hawk camp has not been completely deserted of late.

There was some good news out of the Eurozone for once as German consumer confidence fell to 5.2 in September versus 5.3 in August; marginally stronger than expected against forecasts of 5.1, but still at 10 month lows.

Also before the Fed Chairman’s speech we have GDP revisions from the UK and US. GDP growth is expected to be unrevised at 0.2% in Q2, down from the 0.5% in Q1. Services output is expected to have declined 0.1% in June after the sharp May gain of 1.6%. In the US the advance GDP figures released a couple of weeks ago showed growth at a disappointing annualised pace of 1.3% and we expect a further downgrade today by around 0.3%.

All eyes will be on Jackson Hole, Wyoming however.