Esther George, James Bullard, and Richard Kaplan look for the Fed to start to taper process

The Jackson Hole Summit was expected to start today. The event is put on by the Kansas City Fed. Esther George is the president of the Kansas City Fed, and she argued that

  • the Fed has made substantial further progress in its goals and it is time to start to taper process.
  • Says that tapering should start sooner rather than later

Feds Bullard continued his hawkish ways saying that

  • we probably don't need asset purchases
  • That we have a lot of inflation the US, that he is skeptical that inflation will moderate in 2022, and that it is currently more than expected even with the new framework
  • he looks for the taper to get going and finished by the end of the first quarter so that the Fed can have some optionality in 2022
  • he is concerned that inflation is running faster than wage increases
  • is also concerned about the high price of housing and that buying mortgage-backed securities is counterproductive to slowing those increases

Dallas Fed President Kaplan walked back his concerns about the Delta variant made last week (which prompted a move to the upside in stocks). He commented that:

  • He is not seeing anything that would make material changes outlook
  • his business contacts oh saying that they are weathering the Delta variant and businesses are seeing resiliency and adaptable
  • he is encouraged by the higher percentage of population that is vaccinated
  • Hopes that the Fed will announce a taper plan in September
  • Said that the purchases were designed to stimulate demand and that we don't have a demand problem anymore
  • he does divorce considerations on that asset purchases from rate changes although he still expects a rate hike in 2022
  • he's in favor of a gradual taper with "gradual" meaning taking 8 months or so (which would take it toward the end of the 2Q).

So what is this mean for chair Powell's speech tomorrow?

For those looking for the Fed chair to announce a definitive plan for the taper, don't expect that. Those decisions are made by the Fed Board and Powell is more of a consensus leader vs a sovereign King (at least in the public eye).

He nevertheless could tilt is wording with concerns about inflationary impact that is hurting the lower income group. He could argue that although there are still a number of people out of work compared to pre-Covid levels, that reopening of schools, tolerance for the Delta virus, the lapsing of the emergency employment benefits, and higher wages could lead workers especially in the lower paying jobs back to those jobs. However is likely to stress that he will be monitoring those developments to buy some time until the Fed members can meet in September.

The definitive decision will be made at the September meeting. Whether that leads to starting taper in October or November will be hashed out at that time. He does have the Delta variant to lean against to buy him the time. I expect him to use that card to get through but would not be surprised either if he started to ease more toward the taper goal as a way to let the markets further price in the reality that the buying of MBS and government bonds is not forever. I personally think they get the idea already.