Progress on the labor market, a stable inflation rate – for US Federal Reserve Chairman Jerome Powell these are reasons to consider reducing the billion-dollar bond purchases.
The chairman of the US Federal Reserve, Jerome Powell, has announced a reduction in Fed bond purchases later this year.
“It might be appropriate to start tapering this year,” Powell said on Friday at the Jackson Hole Fed conference. The labor market has made “significant progress”. With regard to the inflation target, he even spoke of “substantial further progress”. The Fed is currently buying bonds worth $ 120 billion a month.
Powell highlighted the improvements in the job market. On the other hand, the delta variant has spread further in the corona crisis. The development will continue to be observed. The chairman of the Federal Reserve made it clear that the beginning of the retraction of the bond purchase program is not a direct sign of an imminent rate hike. The recent significant increase in inflation is only temporary.
Expectations had risen recently in the financial markets that the Fed could give signals for an early exit from bond purchases. Inflation stabilized at 5.4 percent in July – albeit at a very high level. The central bank is only aiming for a rate of 2 percent. In addition, the situation on the labor market has recently continued to improve. Powell had repeatedly pointed out that progress in the labor market in particular was a prerequisite for an exit from the loose monetary policy.
“As expected, Fed Chairman Powell confirmed in his speech that he was heading towards an early exit from bond purchases,” commented Commerzbank expert Christoph Balz. He expects the central bank to decide in the fourth quarter to reduce bond purchases.
In the financial markets, however, the cautious statements about interest rates were primarily taken into account. Ultimately, this was how Powell allayed worries about an abrupt change of course. “Speculations that the tapering could also be followed by a key interest rate reversal in the near future seem inappropriate after Powell’s statements today, which should calm the financial markets,” said Elmar Völker, an analyst at Landesbank Baden-Württemberg (LBBW). With reference to the sharply rising corona infections in the USA, Powell is keeping a back door open in order to postpone the planned start of the exit from the ultra-loose monetary policy.
The financial market participants reacted rather with relief, as they had feared clearer signals with a view to interest rates. The stock markets rose. In addition, the prices of US government bonds rose. According to Powell, the US dollar came under pressure.
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
