http://www.marketwatch.com/story/central-bankers-meet-may-give-clues-on-unwinding-2009-08-20

, MarketWatch

SAN FRANCISCO (MarketWatch) -- As central bankers meet for their annual pow-wow in Jackson Hole, Wyoming, bond and currency analysts say they're listening for comments on how and when ultra-loose monetary polices will end.

"We're looking for how they think the programs will be withdrawn and the speed at which they withdraw them," said Sebastien Galy, a senior currency strategist at BNP Paribas in New York.

The meeting of central bank chiefs from the U.S., Europe, Japan and other industrialized nations, as well as influential academics, isn't known for big pronouncements that suddenly move markets.

But comments on the sidelines of the two-day conference, which starts Friday morning, could make for incremental shifts in an asset manager's strategy to hold dollars or sell Treasury bonds, for instance.

"If you have a longer-term position, it can influence your longer-term thinking," Galy said.

Any suggestion that the Federal Reserve or its counterparts could start to withdraw excess cash at a faster rate than expected would lend support to the country's currency and make its bonds more valuable in the future.

Having driven short-term interest rates near zero, the Fed and other developed economies' central banks have embarked on variations of what's known as "quantitative easing," or buying bonds and other privately held assets to increase money supply and spur lending.

These quantitative easing programs generally depress the value of a country's currency because they effectively make more of it, albeit in electronic form. The U.S. dollar index /quotes/comstock/11j!i:dxy0 (

78.14, -0.25, -0.32%) has lost nearly 10% since March 17, the day before the Fed promised to buy up to $300 billion in Treasurys to drive down mortgage rates and other consumer borrowing costs.

Bonds bought by central banks under these programs can get an initial boost, as Treasurys did in mid-March. But the programs can chip away at their value in the longer term because they can contribute to inflation, which undermines a bond's value.

China, a big holder of U.S. Treasurys, has expressed worries that U.S. stimulus efforts will drive higher inflation and put its savings at risk.

And the market has recently been caught off guard by one major central bank's surprise decision to expand its quantitative easing. The British pound has lost 3% since Aug. 5, the day before the Bank of England said it was adding 50 billion pounds ($84 billion) to its easing program.

Its governor and two others, a BOE statement revealed this week, had wanted to add even more.

The Fed is in a different camp. Analysts say markets are betting the U.S. will keep its quantitative easing on hold and will start offering signs that it will unwind the program.

At its interest-rate setting meeting last week, the Fed didn't add to its hallmark Treasury buying program, though it extended it by a month, perhaps to let the bond market adjust.

Clues on central bankers' thinking that emerge from Jackson Hole are likely to add to the sense that monetary authorities are increasingly going different ways. Having put the worst of the financial crisis behind them, they are attempting the tricky task of helping foster economic growth while keeping high inflation and rising interest rates at bay.

"What's increased over the past eight months is the risk that there's a policy misstep, either on the fiscal or monetary side, that eventually causes an uptick in inflation and a drop in the dollar," said Michael Pond, Treasury and inflation-linked strategist at Barclays Capital.

The scene is a far different one from a year ago, when bankers met in the throes of a global credit crunch, just a few weeks before Lehman Brothers collapsed.

"When there was a perception that central banks across the globe were acting in a coordinated effort, the actions of each individual country were seen as more powerful," Pond said. "The reverse may be true as the path to monetary policy starts to diverge."

Laura Mandaro is a reporter for MarketWatch in San Francisco