Happy Friday!
Jerome Powell spoke to economists, market participants, and government representatives this morning at the annual Jackson Hole Economic Symposium. Historically, the annual conference has been used by Fed chairs to make important announcements regarding the future direction of monetary policy.
Mr. Powell’s remarks this morning seemed to be in line with what investors had expected. Mr. Powell stated, “I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace (of asset purchases) this year.” Mr. Powell also reiterated the FOMC’s view that inflation will be transitory and monitoring incoming data from the labor market will be key.
As we continue to recover from the pandemic induced recession, monitoring the tapering of asset purchases is important for several reasons:
1) Asset tapering by the Federal Reserve usually precedes any potential interest rate hikes.
2) Tapering of certain assets can give investors insights to the state of different markets. For example, if the Fed pulls back on its MBS purchases, that could indicate a strong housing market.
Mr. Powell also referenced monetary policy from the 1950’s to 1980’s, a time in which inflation was indeed transitory. However, policy makers acted too soon raising rates, causing more harm than good.
In summation, Mr. Powell indicated that he is comfortable with the Fed’s current policy stance and his team will be ready to adjust as necessary.
