August 25, 2010 / 4:04 AM / 8 years ago

Global outlook casts shadow over Fed retreat

WASHINGTON (Reuters) - Central bankers from around the world will assess a darkening economic outlook at their annual U.S. mountain retreat this week with discussion of printing yet more money to spur growth on the agenda.

Federal Reserve Chairman Ben Bernanke listens to questions as he testifies before a House Financial Services hearing on the "Monetary Policy and the State of the Economy" on Capitol Hill in Washington, July 22, 2010. REUTERS/Jim Young

Federal Reserve Chairman Ben Bernanke is likely to signal his views about the uncertain prospects for the world’s biggest economy but probably won’t offer many clues on whether the U.S. central bank will pump more cash to keep the recovery going.

Fears the U.S. economy was at risk of a new downturn were heightened on Wednesday by new economic data that showed in July single-family home sales slumped to the their slowest pace on record and factory orders fell by the most in 1-1/2 years.

Other top central bankers will arrive at the Jackson Hole, Wyoming, resort with their own concerns.

European Central Bank President Jean-Claude Trichet faces his own challenge of a two-tier recovery.

While the euro zone economy as a whole has strengthened thanks to strong German growth, the ECB looks set to keep providing banks with unlimited funds at a fixed rate to help banks and governments in Europe’s troubled periphery.

Bank of England and Bank of Japan officials will come to the Teton mountains likely to talk about how they might have to push more money into their economies to stimulate growth, a last resort when benchmark interest rates approach zero.

Bank of Japan Governor Masaaki Shirakawa was due to leave Tokyo on Thursday for the Jackson Hole meeting, making it less likely the Bank of Japan would hold an emergency meeting in the next few days to ease monetary policy.

“It’s not just the U.S. that stalled in June and July, it’s the world economy that hit a wall over the summer months,” said Ellen Zentner, a U.S. economist for Bank of Tokyo-Mitsubishi UFJ in New York.

The likely mood of concern among the central bankers heading for the wilds of Wyoming contrasts with the optimism of a year ago, when debate at Jackson Hole focused on ways to wean economies off emergency support as they emerged from recession.

The discussions give the world’s top central bankers a chance to thrash out the major challenges of the moment as well as hike on trails in the scenic national park.

Past roundups have come at economic turning points: the start of the credit crisis in 2007, the days before Lehman Brothers collapsed in 2008 and before the start of the recovery in 2009.

Chicago Federal Reserve Bank President Charles Evans said on Tuesday that the risks of a double-dip U.S. recession have risen in the last six months. While he added he did not think that was the most likely scenario, he said high unemployment and a fractured housing sector would make the recovery a fragile one.

EYES ON BERNANKE

Bernanke’s speech on Friday will be a keystone of the three-day conference, which has chosen as its theme the challenges of the next decade. His audience will be listening keenly for clues about shorter-term support for the economy.

The Fed said on August 10 it would buy Treasury bonds with proceeds of maturing securities in its massive portfolio. It had been letting its balance sheet shrink naturally, effectively removing some of its huge stimulus.

“This wasn’t the right time to send a signal that we would be allowing a tightening to take place as these securities rolled off our balance sheet,” Dallas Fed President Richard Fisher told Fox Business Network on Tuesday.

The big question now is whether the Fed will start buying Treasury bonds more aggressively again to provide the U.S. economy with a new injection of cash.

The Wall Street Journal said on Tuesday that more senior Fed officials than previously thought voiced concerns about or objections to the relatively modest move to use mortgage debt maturities to buy Treasuries at the August 10 meeting.

The reported split within the central bank’s upper echelons suggested the Fed could stand pat after rebalancing its balance sheet and set a high bar for any further asset purchases.

“Under these circumstances, it would be premature for Chairman Bernanke to provide a set of guideposts for future policy moves, as helpful as that would be for the markets and as much as we believe that additional easing will ultimately be needed,” analysts at Goldman Sachs said in a note on Tuesday.

“Instead, we expect him to concentrate on how the economy and the Fed have come to where they are now, with at best just a general sense of economic risks in the months ahead.”

Reporting by Mark Felsenthal; Editing by Kim Coghill and Eric Walsh

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