Powell: "Tapering This Year Appropriate... Not a Signal for Rate Hike"‥NY Stock Market Rally

Fed Signals Asset Purchase Reduction Within This Year
No Specific Mention of Tapering Timing... November Announcement Possible
US Stock Market Rises Further... Treasury Yields Fall

[Image source=AP Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), has indicated that asset purchase tapering could begin within this year. Although he did not specify the exact timing of the tapering, analysis suggests it is more likely to be announced in November rather than September.

Powell also emphasized that tapering is not a precursor to interest rate hikes, delivering a clear message to the market.

In his keynote speech at the Jackson Hole conference held virtually on the 27th (local time), Powell said, "Along with most of the members who attended the July Federal Open Market Committee (FOMC) meeting, I thought it might be appropriate to reduce the pace of asset purchases, which amount to $120 billion per month, if the economy broadly evolves as expected."

This means that Powell agrees with the majority of Fed members revealed in the July FOMC minutes who supported implementing tapering within the year.

Powell explained, "Significant further progress on inflation has been made, and there has also been clear progress toward maximum employment."

Many in the market had expected that Powell would not make specific comments on tapering at the Jackson Hole meeting due to concerns over the recent spread of the Delta variant. Hawkish Robert Kaplan, President of the Dallas Fed, had also suggested the possibility of delaying tapering if the Delta variant spread worsened.

Regarding Powell’s remarks, The Wall Street Journal reported that while he signaled a tapering announcement within the year, he did not provide specific timing, and it is expected that no tapering announcement will be made before the November FOMC meeting.

Powell also stressed that the start of tapering is not a signal for interest rate hikes.

He explained, "The timing and pace of asset purchase reductions are not intended to directly signal the timing of interest rate increases. We will clearly apply more stringent tests."

Powell reiterated his view that the rise in inflation will ease. He also maintained that the spread of the Delta variant of COVID-19 will not pose a major risk to the U.S. economy.

Powell assessed, "While the Delta variant presents a short-term risk, the outlook for continued progress toward maximum employment remains positive."

Meanwhile, financial markets have shown strength following Powell’s tapering remarks. As of 10:25 a.m., the Dow Jones Industrial Average was up 0.7%, the S&P 500 index also rose 0.7%, and the Nasdaq index increased by 0.9%.

The U.S. 10-year Treasury yield, which is directly affected by tapering, was down 0.025 percentage points from the previous day, forming at 1.332%.

CNBC reported that Treasury yields fell after Powell indicated tapering within the year but said the timing of interest rate hikes is still distant.

This content was produced with the assistance of AI translation services.