* Bernanke speech to be combed for clues to Fed easing
* Even fresh asset purchases are no cure for euro zone,
* Germany's IFO to confirm gloomy mood
By Alan Wheatley, Global Economics Correspondent
LONDON, Aug 26 It's the end of August, so all
eyes will again be on the small Wyoming resort town of Jackson
-- population 9,577 -- to see whether Federal Reserve Chairman
Ben Bernanke fuels or dampens hopes of fresh monetary easing to
lift the U.S. economy.
The annual Jackson Hole summer retreat hosted by the Kansas
City Fed has become a highlight of the global central banking
Expectations this year have not soared to the heights of
2010 or 2011, but equity and commodity prices have been rising
and could react badly if the U.S. central bank chief pulls his
After all, "many" Fed policymakers judged at their Aug. 1
meeting that extra easing would probably be warranted fairly
soon in the absence of signs of a "substantial and sustainable"
economic recovery, according to the minutes of their
Yet some economists reckon not even a third round of Fed
asset purchases would do much to perk up world growth.
For a start, bond yields are already very low and the Fed
has already said it expects short-term rates to remain close to
zero at least until late 2014. The law of diminishing returns is
Above all, buying more U.S. Treasuries or mortgage-backed
securities would do nothing to address the euro zone's
underlying problems or wean China off its dependence on an
investment boom that looks unsustainable, said Julian Jessop
with Capital Economics, a London consultancy.
"These, and not the health of the U.S. financial system, are
now the biggest challenges facing the global economy," he said.
So whereas China's July exports to the United States were
flat from a year earlier and shipments to Southeast Asia rose
briskly, those to the European Union plunged 16 percent. As a
result, total exports edged up just 1 percent.
"Most of the deceleration in export growth is explained by
the European crisis," said Joy Yang, an economist for Mirae
Asset Management in Hong Kong.
That's why markets will be glued not only to Bernanke's
speech on Friday but also to policy signals from the euro zone
ahead of a Sept. 6 meeting of the European Central Bank.
WAITING FOR DETAILS
Investors want the ECB to flesh out President Mario Draghi's
promise to "do what it takes" to preserve the single currency
despite a collapse of confidence in the capacity of the likes of
Spain and Italy to tame their debts.
That evaporation of trust is weighing on the euro zone
economy, which is set to shrink this quarter, polls of
purchasing executives suggest. Germany's closely watched IFO
survey, due on Monday, is likely to confirm the deteriorating
By contrast, economists polled by Reuters expect revised
U.S. gross domestic product data on Wednesday to show the
economy expanded at a 1.7 percent annualised pace in the second
quarter, up from an initial estimate of 1.5 percent.
The Fed has made plain its dissatisfaction with such tepid
growth; the U.S. unemployment rate has fallen to just 8.3
percent from 9.1 percent in July 2011.
But markets are split on what policy steps Bernanke will
flag. Many economists expect the Fed will promise to hold
short-term rates extremely low for even longer while keeping the
option of further asset purchases in reserve for now.
It's hard to see how that would be a game-changer for the
rest of the world.
Indeed, bond strategists at Deutsche Bank said developments
in the U.S. housing market and in credit conditions were already
consistent with slightly above-trend growth; they said their key
source of concern was a slowdown in Asia.
On that score, Yang at Mirae said China, Asia's powerhouse,
might feel more comfortable in relaxing its own monetary policy
if the Fed moved first.
But she said the key to a short-term recovery in growth was
faster domestic investment. Yet project approvals were being
held up by the approaching turnover in China's central
leadership and the accompanying churn of provincial officials.
"Even if the U.S. started to ease more aggressively, the
binding constraint on the fiscal side is the new leadership,"
she said. "Everything is waiting for the political transition."