When Will Ben Open the Door?

07/17/2012 4:49 pm EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

MoneyShow’s Jim Jubak, also of Jubak’s Picks, thinks the Fed will move on more stimulus in the next month or two, and that’s likely to raise accusations of political games before the election.

Same old, same old for Federal Reserve chairman Ben Bernanke in Congressional testimony this morning.

Which fits in with some talk I had around the office yesterday with Jim Rickards, author of Currency Wars, about when we will see the next stimulus from one of the world’s big central banks.

Here’s what Bernanke said today: The Fed is prepared to act; the economy is growing with frustrating slowness; consumer spending and manufacturing have slowed; and the European debt crisis is a big drag on global and US economic growth. In other words, nothing new.

Yesterday, Rickards and I were speculating on which central bank would move next and when. We agreed (scary as that may be) that the European Central Bank wouldn’t move at this week’s meeting because it was too soon after the last interest rate cut, but that the bank would almost certainly cut its benchmark rate again at its August 2 meeting. And almost certainly by another 25 basis points, to 0.5%.

That would clear the way for the Fed to act in the fall at its September 13 meeting, Rickards noted, with the most likely move another round of quantitative easing that targeted the mortgage market.

Fall? But isn’t that too close to the election, and wouldn’t the Fed shy away from a move that would open it up to criticism that it had tried to stimulate the economy to help re-elect President Barack Obama?

One way around that, Rickards said, would be for the Fed to clearly telegraph its move at the annual Jackson Hole symposium hosted by the Kansas City Fed in late August. Once the Fed’s plan was clearly stated, the US central bank could put off any actual bond buying under a QE3 program until after the election.

I’m not sure that kind of gymnastics would help the Fed avoid charges of political favoritism. But I do agree with Rickards that the Fed is likely to act after the European Central Bank has moved again.

After a European rate cut has weakened the euro and strengthened the dollar, the Fed would be looking for ways to temper the dollar’s appreciation. A few more negative reports like the 0.5% drop in June retail sales reported on Monday, and I think you can raise the odds of a Fed move on something like this schedule.

All of this would, of course, be fuel for a typical end of the year rally, and perhaps even a replay of the end of 2011.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.

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