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’s biggest economy.
Expectations that Powell will provide a timetable for the scaling back of the Federal Reserve’s 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.
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.
Even so, interest rates – or yields – on US Treasury bills rose on Wednesday as some investors weighed up the prospect that Powell’s language could yet be tougher than expected. The S&P 500 – a measure of stock market performance – was virtually unchanged after hitting a fresh high on Tuesday.
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 “taper tantrum” in the markets.
Steen Jakobsen, chief investment officer at Saxo Bank, said: “A 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.”
Central bankers have been attending meetings at Jackson Hole since 1978 and this year’s theme is “macroeconomic policy in an uneven economy”. 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.
This year’s 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’s 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.
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’s 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.
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’ 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.
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.
“Given 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.”
Aaron Anderson, senior vice-president of research at Fisher Investments, said: “I wouldn’t expect much from Jerome Powell’s 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’s decision on his reappointment could be days away. The speech might not excite, but boring might be just what investors are hoping for.”
