Federal Reserve Chairman Ben Bernanke is highly unlikely to announce a third round of quantitative easing (QE3) at the 2012 Jackson Hole Economic Policy Symposium, says Steen Jakobsen, Chief Economist, Saxo Bank. He will however probably extend talk of lower federal funds rates into 2015. Full blown QE would be a big ask as interest rates are already very low but a normal is highly likely, says Steen.

"Talk about an extension will give the market something to go for and indicate the Fed is willing to do more," says Steen. He estimates there is a 60-70 percent chance the Fed will do something and it is 90 percent certain it will be a change in language to 2015.

Expecting anything more before there is clarity on the European situation (ahead of constitutional court decision in Germany and Dutch election) plus a US election later this year would be asking too much.

In terms of other Fed measures like rate caps or buying mortgage securities there's close to zero possibility of the Fed announcing this, says Steen.

Shift in Fed focus during election year
Officially the Fed normally has a dual mandate to keep inflation in check and secure unemployment is not too high. During election year the focus is heavily on unemployment. If however over focused on this then Fed might be more forceful in its wording at Jackson Hole an willing to do something. Nevertheless, changes in unemployment don’t happen overnight and certainly not because of changes in monetary policy alone and the biggest barrier right now is the fiscal cliff.

Stock market correction unlikely
There's unlikely to be a stock maret correction if there's no more QE mentioned at this point, he says, adding that the market has pre-empted some of the possible moves by the Fed. As always is the case, pre-announcment of policy changes normally has the biggest impact ahead of actual implementation.

For more comments by Steen Jakobsen see his blog Steen's Chronicle on TradingFloor.com