Market watchers had circled Friday’s speech as one that could potentially set the course for the Fed to announce it was scaling back its asset purchases and planning to hike interest rates.
Instead, they were given a lackluster assessment of when the central bank’s liftoff may begin.
"We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time," Powell said on Friday. "We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis."
The Federal Reserve at the start of the pandemic slashed interest rates to near zero and pledged to buy an unlimited amount of assets in order to cushion the U.S. economy amid its sharpest slowdown of the post-World War 2 era.
The comments sent stocks soaring and caused bond yields to fall as traders scaled back their expectations for when the Fed may begin raising interest rates.
Federal funds futures traded at the Chicago Mercantile Exchange show traders are now pricing in the first full rate hike to occur in January 2023, one month later than before the speech.
Powell’s "uber-dovish speech" reinforced the notion that "tapering does not mean tightening," said Cliff Hodge, chief investment officer at Cornerstone Wealth Management.
Following Friday’s speech, Wall Street economists held steadfast in their belief that the Fed would announce its tapering schedule before the end of the year as long as job gains remain on track and the delta variant does not derail the economic recovery.
"Chair Powell's comments are consistent with our baseline view that tapering will be announced at the Nov meeting and begin mid-month," wrote Bank of America U.S. economist Michelle Meyer.
Unlike in 2013, when the Fed’s tapering announcement sparked a month-long 5.6% selloff in the S&P 500, the upcoming decision is "highly expected and therefore priced into markets," said David Bahnsen, chief investment officer at The Bahnsen Group.
Tapering is "at worst a contributor to short-term volatility and the provocation of algorithmic trading," he said.