The main event of the week is here: the Jackson Hole Symposium. The gathering of the world’s top central bankers, economists and financial market players is traditionally scrutinized for hints on upcoming policy changes with all eyes on U.S. Federal Reserve Chairman Joe Powell who speaks at 10 a.m. Washington D.C. time.
The focus will be on the central bank’s $120bn monthly purchases of Treasuries and mortgage-backed securities, which began last year as part of extraordinary efforts to prop up the Covid-hit U.S. economy.
Conflicting economic signals have made it difficult for policymakers to reach a consensus on the date for exit from ultra-easy policies.
While some members of the Federal Open Market Committee have pointed to surging US consumer price inflation to build the case that the Fed should move quickly to pull back on the money printing (the $120 billion or so of bonds it buys each month), others argue that a more patient approach may still be appropriate.
On the eve of the annual symposium, three of Federal Reserve presidents came out in favor of dialing back the pandemic-era stimulus program sooner rather than later.
The President of the St. Louis Federal Reserve James expressed worry the central bank runs the risk of creating bubbles in the financial markets, as well as runaway inflation if it doesn’t engage in tapering the bond-buying program soon.
“We do have a new framework we did say that we would allow inflation to run above target for some time, but not this much above target. So for that reason, I think we want to get going on taper. Get the taper finished by the end of the first quarter next year,” Bullard stated in an television interview on Thursday (Aug. 27).
Kansas City Fed President Esther George also said it’s time for the central bank to start pulling back on the monetary juice it has been providing. “I would be ready to talk about taper sooner rather than later,” she told CNBC. “It doesn’t mean that we will move all the way to neutral or tighter policy, but I think it’s a first step. Signs in the economy right now are showing that we’re reaching that point.”
Federal Reserve Bank of Dallas President Robert Kaplan said he favors an announcement at the central bank’s September meeting to begin backing off the crisis-era measures it has taken, according to Bloomberg.
Powell who has struck a more patient tone will likely offer few new hints about when the U.S. central bank may start reducing its massive asset purchases.
“Powell l is likely to say that the economy has made good progress and that if it continues down the recent path, tapering might start around year-end and proceed gradually,” Cornerstone Macro analysts said in a report this week.
By about 10:30 am, investors around the world should have a fairly good idea of whether or not the central bank will began tapering large-scale asset purchases this year or next.
UPDATE 27/08/2021 17:49
Federal Reserve Chair Jerome Powell stated during his speech on Friday that the central bank is likely to begin tapering before the end of the year if the “economy evolved broadly as anticipated.”
“We will be carefully assessing the incoming data and the evolving risks,” the Fed chair said. He added that the central bank’s “elevated holdings of longer-term securities will continue to support accommodating financial conditions” even after the asset purchases have ended.
The timing and pace of the reduction of asset purchases will not be a signal for the raise of interest rates, Powell noted.
The U.S. markets reacted positively to Powell’s comments.