Some of the world's most powerful central bankers will meet virtually this week for an annual gathering traditionally held in Jackson Hole, Wyo., and all eyes will be on Federal Reserve Chairman Jerome Powell as investors watch for signs that U.S. policymakers are preparing to wind down the massive bond-buying program put in place during the COVID-19 pandemic.
For months, the U.S. central bank has been grappling with conflicting economic data – surging inflation but slower-than-expected job growth, coupled with the new threat posed by the highly contagious delta variant – and when to begin unwinding the ultra-easy monetary policies implemented to keep the economy afloat in March 2020.
The issue has been complicated by a sharp divergence of opinions among members of the Federal Open Market Committee; minutes from the Fed's July meeting show that while "most" officials are prepared to reduce the $120 billion in monthly asset purchases this year, others think it best to wait until 2022.
Although Powell may shed light on the matter Friday morning when he delivers his highly anticipated speech, Wall Street is much less confident than it was just a few weeks ago that the Fed is preparing to tap the brakes. Bolstering that belief is the Kansas City Fed's last-minute decision to cancel the traditional two-day event and instead switch to a virtual single-day meeting on Friday.
"We probably won’t get clarity on the timing, magnitude and roadmap on tapering that the market is craving," said Joe Brusuelas, RSM chief economist. "It’s been years since [Alan] Greenspan and [Ben] Bernanke utilized Jackson Hole to make major policy pronouncements that moved global financial markets."
Brusuelas said he expects Powell to reaffirm the economic outlook included in the Fed's July meeting during his Friday address.
Last month, the U.S. central bank held the benchmark federal funds rate at a range between 0% and 0.25%, where it has been since March 2020, when the virus forced an unprecedented shutdown of the nation's economy. It also committed to keep purchasing $120 billion in bonds each month, a policy known as quantitative easing that's designed to keep credit cheap.
In their post-meeting statement, policymakers said the economy had made "progress" toward their goals on employment and inflation, a sign the Fed could be inching closer to scaling back its asset purchases at upcoming meetings.
"We’re making progress," Powell told reporters during a post-meeting press conference. "We expect further progress. And we expect that, if things go well, then we will reach that goal. And when we reach it and the Committee is comfortable that we have reached it, then we’ll taper at that point."
Still, that was before a string of disappointing economic data and fears that heightened spread of the delta variant could slow – or derail – the economy's recovery from the pandemic.
"We expect the September FOMC meeting to be the main event where Powell more substantially sets the predicate on tapering, not Jackson Hole," Bruseulas said. "November announcement on tapering and December start date, unless the Delta variant worsens."
There are three more scheduled Fed policy-setting meetings this year: Sept. 22, Nov. 3 and Dec. 15.