Federal Reserve Chairman Jerome Powell took the mic this morning in Jackson Hole, WY at the annual Economic Symposium giving highlights on what he believes needs to happen before the Fed unwinds its easy money asset purchasing program. The market had been looking for direction from Powell as to how soon to expect tighter monetary policy from the Federal Reserve. Market pundits had speculated, along with snippets of comments from Fed board members, that the Fed may begin slowing its asset purchasing program as soon as this fall. These comments and speculations caused the two largest drawdowns in the markets we've seen this year...only a whopping 4% or so in March and May.
However, Powell's comments today have softened this presumed tightening impact giving markets a reason to drift higher once again. Powell said Friday that the U.S. economic recovery appears to be making progress, but warned that the Central Bank needs to be careful not to tighten its policy before enough Americans can return to work.
"Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful," said Powell.
He mentioned that the current spread of the Delta variant still presents a risk to slowing the labor markets return to normalcy but also noted that vaccine campaigns, schools reopening, and an expiration date on unemployment insurance benefits could help restore some of the people who remain unemployed.
Keying in on the buzz word of 2021 'inflation', Powell mentioned that he still sees the majority of the high inflation numbers this year as transitory, believing these high prices will wane into the new year as supply chains catch back up and people return to work. Powell kept his stance on inflation stating that the Fed's policy should look through temporary swings to gauge real and lasting inflationary pressures before lifting interest rates. These comments on Friday fueled higher growth equity assets as investors believe growth is still the place to find investment returns, at least for a while longer.
The markets will look for new numbers on unemployment next Friday, the last unemployment data release, before they meet for the next policy meeting in September. Perhaps in a few more weeks we will have more information on the timing of the tapering. Until then, the markets seem set to drift slightly higher.