In a highly anticipated speech at the Federal Reserve’s Jackson Hole economic symposium today, Fed Chairman Jerome Powell signaled that his agency could begin tapering its asset purchases before the end of the year, citing recent progress toward maximum employment and controlling inflation. The Fed noted previously that it would continue asset purchases as the current pace until it sees “substantial further progress toward our maximum employment and price stability goals, measured since last December.”
“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,” Powell said. “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.”
Powell cautioned that “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,” noting that the Fed has a “different and substantially more stringent test” to determine when raising interest rates would be appropriate. “We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2% inflation on a sustainable basis,” he said.