Chairman Powell Declares Status Quo Maintained... "Uncertainty Has Rather Been Resolved"

Powell at Jackson Hole: "Tapering Possible This Year... But Rate Hikes Are Premature"
Experts: "Chairman Powell Declares Status Quo... Stock Rally to Continue for Now"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), hinted at the possibility of starting tapering (reduction of asset purchases) as early as the end of this year.

However, Chairman Powell did not specify the exact timing of the tapering.

Nonetheless, Powell's official mention of tapering is being evaluated as having alleviated market uncertainty.

While Powell effectively formalized the tapering plan, he showed a cautious stance toward immediate interest rate hikes and made it clear that direct Fed intervention would not occur for the time being. This has led to an analysis that uncertainty has been resolved and the risk of interest rate hikes is not significant. Powell's 'hands-off' attitude has ironically served as a factor in easing market anxiety.

At the Jackson Hole meeting held on the 27th (local time), Powell stated, "We may start reducing asset purchases from the end of this year," but emphasized, "We are still far from achieving the employment target. The tapering of asset purchases will not immediately signal an interest rate hike."

Following Powell's remarks that day, the U.S. stock market responded positively. The S&P 500, a representative index of the U.S. stock market, hit a new high, and Treasury yields declined.

Cash Jones of Schwab Financial Research Center analyzed, "Quantitative easing policies are expected to continue through this year," adding, "This is a positive signal for risk assets."

Investors have long viewed the Fed's entry into tapering as a matter of time. Powell also reaffirmed the market's expectations at the Jackson Hole meeting by saying, "Most Fed board members agreed that this year is an appropriate time to start tapering."

Jones emphasized that there is no reason for investors to change their market positions based on Powell's remarks.

He said, "The stock market rally is expected to continue for the time being," and "There is no signal yet that the Fed will make a major policy change to alter this market trend."

Rick Rieder, investment advisor at BlackRock, said, "There is much to analyze in Powell's remarks," but concluded, "I believe the tapering risk that the market worries about is not significant."

Ultimately, it is analyzed that Powell effectively declared maintaining the status quo and showed a hands-off attitude despite rising inflation indicators and the possibility of interest rate hikes.

Gennady Goldberg, TD Securities strategist, said, "Powell will ultimately act based on real data," adding, "The inflation and employment indicators over the next two months will be the key factors determining the Fed's policy changes."

[Image source=Reuters Yonhap News]

In fact, the rise in U.S. Treasury prices that day is also analyzed as the market viewing the possibility of Fed interest rate hikes as low.

Bank of America diagnosed that the rise in Treasury prices indicates "many investors agree that there are still many obstacles to meeting the conditions for Fed interest rate hikes."

The Fed has presented three conditions for raising interest rates. The Fed's stance is that it will raise rates only after employment fully recovers to pre-COVID-19 levels, inflation reaches 2%, and the average inflation indicator remains at 2% for some time.

Powell's remark that "the employment recovery condition has not been met, and it will take more time to know if the average inflation rate can be maintained at 2%" is also analyzed as emphasizing that it is not yet time to raise interest rates.

Experts agree that as Powell maintains a cautious stance on interest rate hikes, the investment attractiveness of risk assets remains high.

[Image source=AP Yonhap News]

Jay Hatfield, CEO of Infrastructure Capital Management, said, "It is not yet time to abandon high-risk assets," adding, "Investors can continue to invest until the environment actually requires giving up these assets."

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