Supported Tapering Within the Year but Interest Rate Hike Concerns Mitigated
Hawkish Views Expect Implementation in November Rather Than September
Dovish Moves Welcomed by Market
Stock Market and Bonds Rally Together... Dollar Declines
The monitor installed at the New York Stock Exchange displays Federal Reserve Chairman Jerome Powell's speech at Jackson Hole. [Image source=Reuters Yonhap News]
[Asia Economy New York=Correspondent Baek Jong-min] Jerome Powell, Chairman of the Federal Reserve (Fed), supported asset purchase tapering within this year but showed a dovish stance that blocked expectations of interest rate hikes, bringing cheer to the New York financial market. Powell is being evaluated as having laid the foundation to start a stable tapering while preventing concerns of a tightening shock.
On the 27th (local time), the Dow Jones Industrial Average surged 0.69%, the S&P 500 rose 0.88%, and the Nasdaq jumped 1.23% in the New York stock market.
That day, as Chairman Powell expressed a strong commitment to continuing accommodative monetary policy through his Jackson Hole speech, Treasury yields fell and major stock indices rose simultaneously.
The S&P 500 closed above 4500 for the first time ever, and the Nasdaq continued its record-high streak.
On the same day, the US Treasury yield dropped by 0.05 percentage points to 1.307%. Treasury yields continued to fall after Powell’s remarks, approaching the 1.2% level.
Despite Powell’s indication of tapering, instead of the feared tightening shock, the financial market responded with a 'celebratory salute.'
Powell said, "If the economy develops broadly as expected, it may be appropriate to begin reducing the pace of asset purchases within this year." However, he did not specify a concrete tapering schedule.
The Wall Street Journal interpreted this as meaning that the tapering decision would likely be made at the November FOMC meeting rather than the September meeting.
Although some Fed officials demanded a September tapering announcement, Powell showed the most dovish stance possible within the timetable of implementation within this year.
After Powell’s speech, Fed Vice Chairman Richard Clarida said in an interview with CNBC, "If the strong job growth trend continues, we will support tapering in the latter half of this year."
Powell’s addition of a 'caveat' to monitor the Delta variant’s spread in relation to employment also helped ease market anxiety.
Powell expressed the opinion that the Delta variant is unlikely to significantly worsen the economic situation, but he also left a 'loophole' that if the Delta variant hampers the economy, especially the employment recovery, the tapering schedule could be delayed.
The decisive point was that he alleviated concerns about the timing of future interest rate hikes. Powell stated that tapering is not a direct signal for raising the benchmark interest rate and assessed that there is "a long way to go" until the 'maximum employment' goal, a prerequisite for rate hikes, is achieved.
Powell also reiterated his view that inflation concerns are temporary despite the July core Personal Consumption Expenditures (PCE) price index rising 3.6%, the largest increase in 30 years.
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