(PresidentialInsider.com)- During a much-anticipated address Friday at the Jackson Hole economic conference, US Federal Reserve Chair Jerome Powell gave investors and market participants a little reassurance that as part of the central bank’s efforts to prop up the economy, it would continue to support riskier assets at least for a while longer.
During a virtual version of this annual event, Powell affirmed his wait-and-see approach saying that the economy continues to make progress toward benchmarks for reducing the Fed’s pandemic-era emergency programs. He also signaled caution over any eventual decision to raise interests rates.
However, Powell gave no indication on when the Fed plans to cut its asset purchases, only saying it might be “this year.”
After the release of the transcript of Powell’s speech, stocks gained ground. The benchmark S&P 500 index hit a record high. The lack of any new hints on when the US central bank is likely to begin paring bond purchases did, however, sent Treasury bond yields and the US dollar lower.
Investors had been prepared for a potentially imminent decision by the Fed to begin reducing its $120 billion in monthly purchases of US Treasuries and mortgage-backed securities. Powell did say he agreed with the majority of his colleagues that a bond “taper” could be appropriate “this year.” But for now, it remains in place.
Initially it was anticipated that the tapering would be announced as early as September provided the August employment report due on September 3 is strong. A weaker-than-expected jobs report, however, could push that announcement to December.
Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research, said that, barring some big surprises, the Fed is not signaling that they’re “about to pull back enough to change the trend.”
In terms of a possible increase in interest rates, investors saw Powell’s message as “status quo and watch the data.”
According to one investor, the data over the next couple of months will likely determine what actions the Fed takes on interest rates.
The Federal Reserve has a three-part test for meeting the threshold to raise interest rates: if the labor market is consistent with assessments of maximum employment; if inflation has risen to 2%; and if inflation is on track to moderately exceed 2% for some time.
The second condition has been met as inflation has been over 2% for several months now. However Powell indicated that thus far meeting the other two conditions is nowhere near at hand.