Jerome Powell seen as less likely to announce cut to stimulus due to Delta variant affecting growth<\/p>\n
Last modified on Wed 25 Aug 2021 14.08 EDT<\/p>\n
The resort of Jackson Hole in the Grand Tetons will be the focus of intense financial market interest on Friday as the head of the US central bank, Jerome Powell, gives his update on the health of the world\u2019s biggest economy.<\/p>\n
Expectations that Powell will provide a timetable for the scaling back of the Federal Reserve\u2019s colossal support programme have faded in recent days due to signs that rising case numbers of the Delta variant of coronavirus are leading to slower growth.<\/p>\n<\/p>\n
The prospect of the Fed chief adopting a wait-and-see approach in his virtual address to the annual gathering of central bankers hosted by the Federal Reserve bank of Kansas City has calmed markets after falls in share prices last week.<\/p>\n
Even so, interest rates \u2013 or yields \u2013 on US Treasury bills rose on Wednesday as some investors weighed up the prospect that Powell\u2019s language could yet be tougher than expected. The S&P 500 \u2013 a measure of stock market performance \u2013 was virtually unchanged after hitting a fresh high on Tuesday.<\/p>\n
Eight years ago, a former Fed chairman, Ben Bernanke, prompted a surge in US bond yields after revealing to Congress that the central bank was about to reduce support. With the global economy still fragile, most analysts believe Powell will be wary of prompting another \u201ctaper tantrum\u201d in the markets.<\/p>\n
Steen Jakobsen, chief investment officer at Saxo Bank, said: \u201cA bit of caution may settle over the market ahead of the speech from Fed Chair Powell at the Jackson Hole Fed Symposium on Friday, although many question whether the Fed is ready to stick its neck out and indicate any urgency to slow purchases with the Delta variant clouding the outlook.\u201d<\/p>\n
Central bankers have been attending meetings at Jackson Hole since 1978 and this year\u2019s theme is \u201cmacroeconomic policy in an uneven economy\u201d. Until recently it had been thought likely that Powell would use the prestigious event to give more details about when and by how much the Fed would reverse its asset-buying programme, known as quantitative easing, in view of stronger than expected inflationary pressure.<\/p>\n
This year\u2019s event is likely to be a more modest affair than recent years: the guest list has been limited due to coronavirus restrictions, meaning the Bank of England\u2019s governor, Andrew Bailey, will be among leading central bankers not in attendance. Last year he gave a virtual speech when the event was held online.<\/p>\n
The US economy has already recovered the ground lost in the early months of the pandemic and the minutes of the last meeting of the Fed\u2019s policymaking body said a majority of members thought there was a case for reducing the pace of asset purchases by the end of the year.<\/p>\n
But the mood of the markets has shifted since the president of the Dallas Federal Reserve, Robert Kaplan, who is among the US central banks\u2019 strongest advocates for starting to reduce support for the economy, said last week he would have a change of heart if coronavirus slowed economic activity materially.<\/p>\n
The latest survey of the US private sector showed growth at its weakest in eight months and Willem Sels, chief investment officer for private banking and wealth management at HSBC, said he did not expect anything dramatic from Powell.<\/p>\n
\u201cGiven the uncertainty around US and global growth, due to the resurgence of the Delta variant, the Fed may want to keep its options open and, therefore, Powell is unlikely to give us all of the details at Jackson Hole.\u201d<\/p>\n
Aaron Anderson, senior vice-president of research at Fisher Investments, said: \u201cI wouldn\u2019t expect much from Jerome Powell\u2019s Jackson Hole speech. He will maintain as much policy flexibility as possible, and there are too many question marks for him to suggest policy changes are imminent. Economic data has been mixed, the Delta variant looms, and President Biden\u2019s decision on his reappointment could be days away. The speech might not excite, but boring might be just what investors are hoping for.\u201d<\/p>\n