Watch Fed chair Jerome Powell's full Jackson Hole speech | My study notes

Aug. 29, 2021

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Federal Reserve Chair Jerome Powell delivers comments on employment and Fed policy to the virtual Jackson Hole meeting. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi Federal Reserve Chairman Jerome Powell indicated Friday that the central bank is likely to begin withdrawing some of its easy-money policies before the end of the year, though he still sees interest rate hikes off in the distance. In a much-anticipated speech as part of the Fed’s annual Jackson Hole, Wyoming, symposium, Powell said the economy has reached a point where it no longer needs as much policy support.

That means the Fed likely will begin cutting the amount of bonds it buys each month before the end of the year, so long as economic progress continues. Based on statements from other central bank officials, a tapering announcement could come as soon as the Fed’s Sept. 21-22 meeting. However, it does not mean that rate increases are looming. “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, for which we have articulated a different and substantially more stringent test,” Powell said in prepared remarks for the virtual summit. He added that while inflation is solidly around the Fed’s 2% target rate, “we have much ground to cover to reach maximum employment,” which is the second prong of the central bank’s dual mandate and necessary before rate hikes happen. Markets reacted positively to Powell’s comments, sending major stock indexes to record highs while government bond yields moved lower. Powell also devoted an extensive passage in the speech to explaining why he continues to think the current inflation rise is transitory and will drop eventually to the target level. The Fed has used the term “substantial further progress” as a benchmark for when it will start tightening policy. Powell said that “test has been met” for inflation while there “has also been clear progress toward maximum employment.” He said he and his fellow officials agreed at the July Federal Open Market Committee meeting that “it could be appropriate to start reducing the pace of asset purchases this year.” That question over “tapering” of the minimum $120 billion of monthly bond purchases has had the market’s attention as much for what it means on a mechanical level as for what it signifies when the Fed will start hiking rates.

In an effort to resuscitate the economy during the early days of the Covid-19 pandemic, the Fed took its benchmark rate down to near zero and accelerated its bond buying, or quantitative easing, program to where its balance sheet is now at nearly $8.4 trillion, about double where it was in March 2020. At last year’s Jackson Hole summit, also held virtually, Powell outlined a bold new policy initiative in which the Fed committed to full and inclusive employment even if it meant allowing inflation to run hot for a while. Critics have charged that the policy is partially to blame for current price pressures at their highest levels in about 30 years. However, Powell defended the policy Friday and stressed the importance of the Fed not making an “ill-timed policy move” in response to temporary economic gyrations like the action this year in inflation. “Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful,” he said. “We know that extended periods of unemployment can mean lasting harm to workers and to the productive capacity of the economy.”

Actionable Items

I like to survey how good I am to read the report. I like to put together some questions first, the answer can be found in the article.

1. That question over “tapering” of the minimum $120 billion of monthly bond -> Question: How many billions is the monthly bond purchase?
2. its balance sheet is now at nearly $8.4 trillion, about double where it was in March 2020 -> How many billions in total are purchased since March 2020?
3. Powell defended the policy Friday and stressed the importance of the Fed not making an “ill-timed policy move” in response to temporary economic gyrations like the action this year in inflation ->