Daily News Brief

August 26, 2010

EXECUTIVE SUMMARY

- Bernanke to Deliver Economic Outlook
- Japan's Ozawa Challenges PM Kan
- Investigated Karzai Aide Linked to CIA
- German Consumer Confidence Rises

Top of the Agenda: Bernanke to Deliver Economic Outlook

Federal Reserve chairman Ben Bernanke will offer his outlook on the economy (NYT) Friday amid fresh indicators that the U.S. and global recovery are slowing.  Bernanke's speech, at an annual Fed symposium in Jackson Hole, Wyoming, will be his first public comments since the Fed announced it would invest the proceeds from the central bank's mortgage bonds into longer-term Treasuries to help the recovery. Bernanke may discuss the risk of deflation given the persistently high unemployment rate and low inflation level. A major question is whether the Fed should take bigger steps to boost the economy by printing more money and buying more assets.
Fed officials are split about whether declining demand, wages and prices merit additional monetary stimulus. The concern is that more Fed action would shake market confidence and eventually cause inflation. After news that sales of new homes in July hit an all-time low, Fed watchers await news Friday about whether the economy grew less than expected in the second quarter (WashPost).

Other central bankers, including the European Central Bank's Jean-Claude Trichet and the Bank of England and Bank of Japan, will attend the event to address their own monetary concerns about the global recovery (Reuters).

Analysis:

In the Wall Street Journal, Chris Percell says if monetary policy isn't eased more, inflation could fall further. That outcome “would become even more likely if outside events, such as the euro-zone sovereign debt crisis, led to economic stagnation overseas,” he says.

On Roubini.com, Mark Thoma says Bernanke's reluctance to take his case about the course of monetary policy has to do with the democratic committee process he has tried to create at the Fed. But when there is considerable uncertainty, the Fed “needs to use the influence bestowed upon him.”

Background:

This Wall Street Journal interactive examines key themes from Bernanke's past keynote speeches ahead of his comments at Jackson Hole.

MIDDLE EAST: Sunni Force Targeted in Iraq

Eight members of a U.S.-organized, government-backed Sunni force were killed in eastern Iraq after a spate of bombings and shootings (al-Jazeera) -- mostly targeting security forces -- killed at least fifty Iraqis Wednesday.

This CFR analysis brief examines President Barack Obama's defense of the U.S. troop drawdown in Iraq this month as U.S. and Iraqi military officials seek a longer force commitment.

Israel: Israeli politicians are engaged in intense debate over continuing the ten-month settlement construction freeze (Haaretz) in East Jerusalem, a week before Israeli Prime Minister Benjamin Netanyahu is scheduled to depart for direct peace talks in Washington.

Progress is possible in the newly announced Mideast talks, but the Obama administration will need to display deft leadership to overcome deep mistrust between Israelis and Palestinians, writes CFR's Robert Danin.

PACIFIC RIM: Japan’s Ozawa Challenges PM Kan

Japanese politician Ichiro Ozawa announced a bid to challenge Japanese Prime Minister Naoto Kan's rule, which could split the ruling party (JapanTimes) and delay the government's response to the country's economic problems.

North Korea: North Korean leader Kim Jong-Il traveled to northeastern China (Yonhap) in his second trip outside the country this year. The trip is possibly related to Kim's plan to hand control of the regime to his youngest son.

SOUTH AND CENTRAL ASIA: Investigated Karzai Aide Linked to CIA

An aid to Afghan president Hamid Karzai, at the heart of a corruption investigation, has been on the CIA's payroll (NYT) for years, the New York Times reports, even as U.S. officials demand that Karzai root out corruption pervading his government.

Pakistan: Pakistani authorities ordered nearly a half -million people to evacuate three towns in the country's Sindh province (Dawn) threatened by fresh flooding.

Pakistan's floods spell setbacks for the U.S. fight against extremism and its war effort in Afghanistan, says CFR's Daniel Markey. He says beyond humanitarian aid relief, Washington must focus on boosting Pakistan's economy through greater trade opportunities.

AFRICA: South African Police Barred from Strike

A South African court barred police officers from joining a nationwide strike of public workers (BBC) that has lasted nine days, after the main police union announced it wanted to join the protest.

Congo: The United States expressed concerned about reports of mass rape in the Democratic Republic of Congo (allAfrica) and promised to work with local governments and the UN to rectify the situation. UN chief Ban Ki-moon sent a top envoy to investigate the problem Tuesday.

AMERICAS: Massacre in Mexico Linked to Migrants

The seventy-two people found dead on a ranch in northeast Mexico earlier this week may have been migrants, which could link the incident to human smuggling from Central and South America (NYT).

More than 100 foreign intelligence services "are trying to hack into the digital networks that undergird U.S. military operations," writes U.S. Deputy Defense Secretary William J. Lynn III in the new Foreign Affairs.

EUROPE: German Consumer Confidence Rises

German consumer confidence rose in August to its highest level since last October, a sign the recovery in Europe's largest economy (FT) will continue and that the country's industrial export-led recovery is feeding consumer growth.

France: French President Nicolas Sarkozy outlined his agenda for the Group of 20 (WSJ), which he will head beginning in November. He said his priorities include stabilizing erratic foreign exchange and commodities markets and the a need to reduce the U.S. dollar's dominance as the global reserve currency.