Powell Signals Bond Tapering

Federal Reserve Chair Jerome Powell said the central bank is prepared to start reducing the size of its corporate bond-buying program as early as this year, but that shouldn’t be a signal for an interest rate hike anytime soon.

In his keynote speech at the start of the Jackson Hole Summit Friday morning, Powell said a timeline for the “coming reduction” in the $120 billion per month asset purchase program will be tied to the ongoing recovery from the pandemic and the potential resurgence of COVID-19 through the spread of the Delta variant.

Powell stood by his previously stated position that the high inflation prints over the last few months were generated by the economy’s recovery from pandemic-driven restrictions and supply chain issues.

Inflation Goal In Reach

While he said the Fed’s long-term 2% inflation target is currently in reach, the “substantial slack” still in the labor market makes it too early to start talk of a hike in the federal funds target interest rate anytime soon.

“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.

Powell’s speech didn’t hold any major surprises, and the lack of a hard timeline for the bond-buying taper was received warmly in early trading. The S&P 500 rose 0.77% as of noon Eastern Time, while five-year and 10-year Treasury yields declined 2 basis points and 1.6 basis points, respectively.

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