Bernanke's Mountain to Climb
Author: Peter Eavis</br></br>If Ben goes wacko in Jacko, could stocks spike like the Grand Teton?</br></br>Trumpeting any formal policy change would, of course, be a huge surprise. But as central bankers gather this weekend in Jackson Hole, Wyo., investors would nevertheless cheer any sign that Federal Reserve Chairman Ben Bernanke is considering another big bout of bond purchases to invigorate the U.S. economy.</br></br>In an unorthodox policy dubbed quantitative easing, the Fed bought $1.7 trillion of bonds during the financial crisis. QE didn't work as well as many had hoped--much of the freshly printed money ended up idling in the banking system--and it can distort markets and interrupt important economic adjustments. Regardless, if Mr. Bernanke intimates the Fed is ready to launch QE2, stocks should rally.</br></br>What stock investors are hankering for is an unequivocal sign from the Fed that it won't allow a double-dip recession. Quantitative easing is arguably the most powerful weapon in the Fed's arsenal. After a slew of downbeat economic data, the Fed has cover to openly consider using the big gun again.