Powell is going to confuse everyone

Powell is going to confuse everyone

Aug 27 • Top News • 213 Views • Comments Off on Powell is going to confuse everyone

A few hints about bond purchases may come from Powell. The most likely answer is that he does not mention what time the bond buyback will be terminated.

Analysts said that Federal Reserve Chairman Jerome Powell’s speech at an economic conference in Jackson Hole on Friday would likely offer several hints about when the central bank will begin reducing its massive asset purchases.

In Powell’s case, the Fed could use a $120 billion cut in monthly purchases of Treasury bonds and mortgage-backed securities to avoid market interest rate increases by explaining why this does not mean an imminent rise in rates. 

A central bank may argue that this is justified or beneficial in an economy where millions of people are still unemployed.

Minutes of political meeting and discussion about bond purchasing.

Minutes of the political meeting of July 27-28 show that many members felt it was essential to emphasize the lack of a “mechanical link” between the gradual reduction in bond purchases and the rate hikes.

Unsubscribing from this link will not be easy. In addition, many Fed officials believed it would be better to end the bond-buying program before raising interest rates. Furthermore, they argue whether procurement should be cut quickly or extended, perhaps by as much as eight months.

Policymakers argue that bond-buying helps in economic recovery.

In addition, some policymakers argue that buying bonds helps little anyway, as they aim to maintain demand but fail to remove bottlenecks that businesses face when trying to meet that demand as the economy is recovering rapidly.

Since there are so many unresolved issues, there was always the possibility that Powell would take advantage of his remarks at the Kansas City Fed central bank conference, which is usually held in Jackson Hole, Wyoming.

Delta variant has a huge effect on the slowdown of the US economy.

The rapid spread of the delta coronavirus is particularly relevant today, as signs of a slowdown in the US economic recovery are already evident, particularly in the regions most afflicted by the disease. Moreover, the data raises new questions about what seemed to be a domestic consensus at the Fed meeting last month to end emergency support for the economy later this year.

Other Fed members’ opinion

Even Dallas Fed chief Kaplan, one of the central bank’s most prominent supporters of early cuts, said he noticed Delta influence last week and will remain impartial ahead of next month’s policy meeting.

In addition to the nearly 1.9 million jobs created in June and July, economists surveyed by Reuters foresee the US economy adding another 725,000 jobs this month. Moreover, inflation – whose new figure will be released shortly before Powell’s speech – has already exceeded the Fed’s 2% target for several months. However, most US central bankers expect it to decline soon.

According to many Fed policymakers, the economy is close to “significant further progress” towards full employment and 2% inflation, the bar they set before cutting monthly asset purchases.

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