Powell Stays on Course, Signals 2021 Taper Start at Jackson Hole

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Federal Reserve Chair Jerome Powell said the U.S. central bank could begin slowing down asset purchases this year as the U.S. economy recovers from the pandemic, but it won’t be in a hurry to raise interest rates.

Speaking at the Fed’s annual Jackson Hole policy forum on Friday, Powell sounded a note of caution about employment levels and stuck to the central bank’s message that the current bout of inflation is due in part to supply-chain disruptions brought by Covid-19 and likely to be transitory.

Powell didn’t provide a specific timeline for starting scaling back the Fed’s $120 billion-per-month in bond buying, a program started last year in response to the Covid-19 crisis. While the economy is on a strong path forward, the Fed will be carefully assessing incoming data to see how risks like the delta variant of the virus might impact progress toward its goals, Powell said. 

Markets took the speech in stride. U.S. stocks advanced to another record high while Treasury yields and the dollar fell.

Powell’s comments were echoed by his number two, Vice Chair Richard Clarida, even as the central bank’s more hawkish wing urged the need to start the tapering process as soon as possible.

Atlanta Fed President Raphael Bostic said he’s in favor of a quick tapering process so that the economy can stand on its own. Dallas Fed President Robert Kaplan said it should start “as soon as possible,” but prefers a more gradual approach once it does get under way.

The Fed’s conference --  traditionally held in Jackson Hole, Wyoming, with the peaks of the Teton mountain range providing a laid-back atmosphere for the usually buttoned-up crowd -- was held virtually this year for a second time amid a new surge of coronavirus infections across the country. The program condensed to just one day.

While Powell’s speech was the only public part of the program, the central bank did release several papers that were presented at the symposium. The research spanned the gamut, from examining how expansionary monetary policy can help smooth economic shocks like those presented by Covid-19 to a look ahead at the two-speed recovery that’s likely to hurt emerging-market countries as they lag behind their richer peers. 

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