Let it be clear that the launch of a possible QE tapering by the Federal Reserve would not imply an immediate subsequent rate hike. This is what emerges from the speech that Fed number one Jerome Powell made at the Jackson Hole symposium, which also in this edition of 2021, for the second consecutive year, is held in virtual form, due to the Covid pandemic. 19.
And, as expected by several analysts, Powell spoke about Covid, or to be precise, the Delta variant, indicating on the one hand that the tapering will take place by the end of this year, and underlining on the other hand the importance that the Fed does not make a move at the wrong time in responding to temporary shifts in the economy, such as those unfolding this year.
“At the recent July meeting of the FOMC (the monetary policy arm of the Fed) I was of the opinion, as did most of the participants that, if the economy had grown as broadly as we had anticipated, it would then be appropriate to start reducing the pace of asset purchases (QE) this year – the central banker said – The following month confirmed the greater progress that has been made (by the economy), as demonstrated by the solid July employment report. ”
But Powell also recalled that, since July, “there has also been a greater diffusion of the Delta variant”.
As a result, he continued, “we will closely monitor incoming data and evolving risks” and, “even after the end of our asset purchases, our investments in longer-term financial instruments will continue to support accommodative financial conditions.” .
In short, “the timing and pace of the imminent reduction in asset purchases (tapering) will not represent any direct indication of the timing with which interest rates will be raised”.
With regard to rates, in fact, explained the helmsman of the US central bank, “we have articulated a different and much more severe test”.
Powell noted that while the US inflation rate hovers solidly around the Fed’s 2% target, “we have a long way to go to reach maximum employment,” a sine qua non for fed rates. funds may return to being raised, after being pushed into the zero to 0.25% range in response to the outbreak of the Covid-19 pandemic last year.