As investors wait to hear what Federal Reserve Chairman Ben Bernanke says in his Jackson Hole, Wyoming, speech, there are market jitters everywhere – gold has flirted with new records, retrenching slightly over the past two days.

A year ago, the Fed said it would print more money to boost jobs and output. Today, however, hiring remains subdued at companies and economists have in recent months increased the chances of a double-digit recession, as they revise downwards their growth expectations.

At the same time, the intermittent year has seen commodities become expensive, the dollar drop against other currencies broadly, and US inflation creep up.

“It did serve to assist a rise in stock prices and some temporary lift to the confidence of the forecasters and soothsayers,” says John Redwood, a former UK Conservative cabinet minister and chairman of the investment committee for Evercore Pan-Asset Capital Management.

What are wealth managers expecting?

“I would expect the news from Jackson Hole to be nuanced. I would expect a bit more than just the reaffirmation of low interest rates in our time. There may be tunes to be played within the current portfolio of bonds. I would also expect Bernanke to leave open the possibility of a `QE3’, without specifying when and how much,” says Redwood.

The private bank Coutts says the backdrop to this year’s Jackson Hole conference is “quite different,” as rising inflation expectations have replaced those about deflation.

“As a result we think Chairman Bernanke’s speech on Friday may include: more detail on the Fed’s economic outlook of slowing US growth; a reiteration of the Fed’s commitment to battle against deflation or as it puts it ‘deviations from price stability in the downward direction’; and a review of the policy options outlined in 2010 along with more detail on what additional asset purchases might look like,” says Norman Villamin, Coutts’ head of investment strategy, Asia.

“The speech is not likely to include either an outright policy announcement (QE3) or aggressive, non-conventional measures such as buying private sector securities or inflation targeting,” he adds.

“A lack of initiatives could disappoint an already jittery market, but it is worth remembering that it was only two weeks ago that the FOMC last met and announced their intention to keep rates unchanged for two years, so we are not expecting any further guidance, at this time, towards a QE3 program," says Iain Stealey, portfolio manager, global multi-sector income strategy, at JP Morgan Asset Management.

“Previously, the Fed has noted two pre-conditions for undertaking QE: persistent economic weakness and the risk of deflation. Although there is growing evidence to support the first condition, the Fed’s favored measure of inflation expectation, the five year forward five year break-even inflation rate is not currently showing any deflationary pressure,” he adds.

So, given today’s environment compared to a year ago, many in the wealth management industry are not expecting the Fed to commit to QE3.

My verdict

So what to make of all this?

While this news may not be greeted with cheers by those looking for a boost – any boost – to asset markets, I would argue that for both for the general population and the eventual stability of the markets, it is a good thing.

One obvious observation to make from the current environment is the weight investors are clearly putting on the Fed’s decision, and thus how manipulated the markets are by that organization’s actions.

While the Fed’s actions boosted asset prices temporarily, they have done so at the price of uncertainty about the stability of the dollar and created a volatile, sideways market. There have been strong rallies in assets to which few have access or ownership, such as gold, while the effects on jobs growth has been limited just as purchasing power is being eroded.

Real gross domestic product increased at an annual rate of 1.3 percent in the second quarter of 2011, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 per cent.

Total nonfarm payroll employment rose by 117,000 in July, and the unemployment rate was little changed at 9.1 percent, the US Bureau of Labor Statistics reported. Coutts recently predicted a self-sustaining recovery in the US would require non-farm payrolls growth of around 200,000-250,000 per month.

While they appear to be subject to very low returns, QE programs also make wealth managers’ jobs harder, as asset prices become increasingly divorced from reality and risk is harder to gauge. Also, it forces their hands in taking more risk with clients’ money.

For those investing in the markets, as ever the best thing is to look to the long term and allocate capital where it will be productive. But by artificially manipulating prices through quantitative easing, the Fed makes that job a lot harder.