Fed Chairman Jerome Powell speaks about the economic outlook in the keynote address at Jackson Hole
- Outlook for labor market has brightened considerably in recent months
- Prospects good for continued progress towards max employment
- At July meeting I thought it could be appropriate to start taper this year. Since then there has been more progress on employment but also the further spread of the delta variant
- Will be carefully assessing incoming data and the evolving risks
- Incoming data should provide more evidence that supply-demand imbalnaces are improving and more evidence of continued moderation in inflation
- If sustained higher inflation were to become a serious concern, the Fed would certainly respond
- Inflation at these levels is a cause for concern but elevated inflation readings likely to prove transitory
- Little reason to think underlying disinflationary factors have suddenly reversed; they're likely to continue to weigh on inflation
- The spike in prices is in a relatively narrow group of goods. Durable goods alone contributed 1.0 pp and energy another 0.8 pp to y/y numbers. Also cites reopening of hotels adding a 'few tenths' and says all 'should wash out over time'.
- Used prices have begun to stabilize and some have begun to fall
- We see little evidence of wage increases that might threaten excessive inflation
- Full text of the speech
The US dollar is falling as Powell punts, rather than offering any kind of taper signal. He's not offering anything like other Fed speakers who have laid out the case for tapering and when. Instead, he's saying that he's going to keep on watching delta and jobs.
There were certainly some late shifts into dollar longs on speculation he might offer something like Mester. Those are clearing out now as we're going to be playing a guessing game for a bit longer.
That said, without him offering a signal now, the chance of a September taper announcement is very low.
Key passage:
At the FOMC's recent July meeting, 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 of asset purchases this year. The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant. We will be carefully assessing incoming data and the evolving risks. Even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions.
The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test.
Here's a chart Powell used to underscore that he expects durable goods prices to stabilize or fall:
