Fed Chair Jerome Powell Signals Fed Could Taper Stimulus This Year
Stocks rose after Fed Chair Jerome Powell signaled the central bank could begin reducing its monthly bond purchases this year.
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- Fed chief Jerome Powell says the central bank could start the tapering process this year
- Stocks jump to record high closings as investors renew their positive outlook
Federal Reserve Chairman Jerome Powell said Friday central bank officials are largely in agreement to begin unwinding the extraordinary monetary support at some point this year. The easy-money policies introduced by the Fed in March 2020 have underpinned the economic recovery amid the worst times of the pandemic.
At the Fed’s virtual Jackson Hole symposium, the highly-anticipated central bankers’ annual conference, Jerome Powell explained his stance toward reversing ultra-loose policies while he also argued why he considered the sharp jump in inflation to prove temporary.
“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”, Mr. Powell said Friday, referring to the Fed’s meeting in late July.
The minutes from the latest Fed policy meeting showed a consensus had emerged toward scaling back the pace of the Fed’s $120bn in monthly asset purchases later in the year.
An Upward Trajectory for the US Labor Market
Since that meeting, several economic indicators have given mixed signals about the recovery of the labor market, inflationary pressures, and the overall state of the economy. In signs of a slowdown in the economic activity, July’s consumer spending cooled to a slight rise of 0.3%, compared with an increase of 1.1% in June, as per data from the Bureau of Economic Analysis.
The Fed’s preferred inflation gauge, the core personal consumption expenditures, or core PCE, remained high at 3.6% in July, the same pace as June’s reading.
On the other hand, the latest jobs report showed US employers added 943,000 new hires in July, indicating the labor market stayed on an upward trajectory.
Chairman Jerome Powell said he and other central bank officials will use actual Covid-19 data and fresh economic readings to figure out how to approach the US economy in the last few months of the year.
One of the surest ways for Fed officials to get a sense of the pulse of the economy is to look at the workforce growth printed on the nonfarm payrolls report. Friday’s release of unemployment and hiring numbers in August will be closely monitored by policymakers and investors alike.
Fed’s next meeting is scheduled for Sept. 21-22. Several Fed officials have indicated that they are ready to begin the tapering process shortly after that meeting if labor market conditions remained strong while hiring kept accelerating.
Markets rallied Friday as investors’ fears were largely dispersed by Jerome Powell’s reassurances that inflation would fade over time. The S&P500 climbed nearly 0.9% to a new record close of 4,509.37. The Nasdaq Composite also notched a closing record as it gained over 1.2% to end the session at 15,129.50. The Dow Jones Industrial Average added roughly 0.7% to settle at 35,455.80.
Futures on Monday hover near the flatline to modestly higher.
European markets today are relatively subdued, following a strong session on Friday. The pan-continental Stoxx 600 closed Friday’s trading higher by 0.4%, bringing its weekly gains to 0.8%.
Cryptocurrencies traded under pressure in the early hours of Monday’s session. Bitcoin slipped below $48,000, while ether declined below $3,200 per coin. Still, bitcoin managed to end last week in the green, marking a winning streak of five weeks straight.