What to expect from the Federal Reserve during this month’s Economic Symposium in Jackson Hole Wyoming

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The next important insights into the current thoughts and plans of the Federal Reserve will come on Wednesday, August 18, when the Federal Open Market Committee Meeting minutes will be released. However, it will be later this month at the Jackson Hole, Wyoming Economic Symposium, when we will gain the freshest insight into the current thinking of Federal Reserve members.

According to the Wall Street Journal, it is widely believed that Federal Reserve officials are coming closer to a consensus of the timeline they will implement to begin tapering their asset purchases. “Federal Reserve officials are nearing an agreement to begin scaling back their easy money policies in about three months if the economic recovery continues, with some pushing to end their asset-purchase program by the middle of next year.”

The Wall Street Journal article cited recent interviews coupled with public statements. Several Fed members have advocated the initiation of tapering their monthly purchases of $80 billion of U.S. debt and $40 billion of mortgage-backed securities. Fed members began to allude to a timetable to scale back their quantitative easing purchases, which were adopted at the start of the pandemic. At the end of July, the signal was that this process could start later this year.

The best current estimates anticipate that the Federal Reserve will begin to taper their monthly purchases by the middle of 2022. “In recent interviews and public statements, several have advocated for this timetable, which would enable them to raise interest rates sooner than currently anticipated if the economy makes rapid progress toward their goals.”

At a news conference on July 28 held by Federal Reserve Chairman Jerome Powell, he stated that the Fed was still “a ways away from considering raising interest rates. It’s not something that is on our radar screen right now.” However, with the most recent jobs report indicating an additional 900,000 new jobs were added, that could certainly strengthen the case for the Federal Reserve to make some concrete announcement at its next FOMC meeting on September 21 and 22.

Concurrently many Fed members believe their actions will be more aggressive. With Chicago Fed President Charles Evans said, “I do expect we are going to be at the point where we’ve seen substantial further progress…probably later this year,” in a virtual roundtable with reporters last week. In an interview, Boston Fed President Eric Rosengren said that he anticipates meeting enough job growth to meet the criteria for reducing bond purchases by the September 21 – 22 FOMC meeting.

However, other Fed officials have argued for more patients. The Wall Street Journal reported that, “Fed governor Lael Brainard indicated last month she wanted to see September hiring data, which won’t be available until early October, before deciding. That would hold off any tapering until no sooner than the Fed’s Nov. 2-3 meeting.”

This was in line with the thoughts of San Francisco Fed President Mary Daly, who said in an interview last week that she thinks the economy should support “beginning to taper later this year, or maybe next.” Labor markets are “really strong—getting stronger,” she also said it was too soon to say how the Fed should reduce the purchases. “Those things haven’t been decided,”

With such a diversity of opinions and mixed messages by Fed members, the economic symposium will certainly give market participants the latest insight into the potential timetable when the Federal Reserve begins to taper its asset purchases. Because of the diverse opinions of Fed members, market participants could gain insight into the nuances of what members are thinking and how they plan to move forward.

Wishing you, as always, good trading,

Gary S. Wagner - Executive Producer