Bernanke to speak Monday. But what's the point of listening?
Morgan Stanley (MS) told clients Friday that the chairman's speech might be the "key in determining the path of the dollar into year-end," with any hawkish hints probably boosting the greenback for a little while. But apart from a mild short-term bump, the dollar has no place to go but down. And that's precisely what Bernanke wants.
True, there may be a teensy bit of rhetoric coming from the fed chief Monday, if only to calm our traumatized trading partners, says David Wyss, chief economist at Standard & Poor's. But the fact is that any country manipulating its currency manipulates it in one direction only: down.
"I don't see why he would hint at hawkishness on the dollar," Wyss says. "Why would he? The issue is jobs. Like everybody else, he knows that." That's because a weak dollar boosts U.S. exports, and as long as unemployment remains awfully, perniciously, stubbornly high, the Fed's zero-interest-rate policy will stand. And everyone knows it.
Don't Upset the Lunch Crowd
Economists, on average, forecast the unemployment rate at 9.4% at the end of 2010. That's a heck of a lot better than today's 10.2% figure -- which is probably closer to 20%, if you count the folks who've given up looking for work -- but it's still morbidly bad. Exports are supposed to create jobs, and nothing gives exports a lift like making them cheaper. If Bernanke wanted a stronger dollar, he'd hike rates. That ain't gonna happen anytime soon.
Indeed, most economists don't see a rate hike coming until September, according to the new Wall Street Journalforecasting survey. (Super-bear David Rosenberg, chief economist and strategist at Canada's Gluskin Sheff, told clients Friday that the Fed can't even think about raising rates until after 2011. We are woe itself, if he's right.)
Besides, why would Bernanke say anything that would make his luncheon guests require the Heimlich maneuver, just when their equity portfolios are doing so darn well? After all, as we've written before, the flaccid greenback has done wonders for stocks. Just witness the strong inverse correlation between the two ever since the market took off on its magical mystery rally last March.
Winking and Coughing
So just when will the fed chief really get serious about a rate hike? Since few things can blow up both the equity and debt markets at the same time quite like a surprise rate hike, Bernanke will have to start winking and coughing and hinting and nodding it well in advance.
In other words, in the unlikely event Bernanke says anything remotely hawkish about the dollar during Monday's lunch? He's talking to the rest of the world, not the U.S. Don't you believe it.