Fed's Powell likely to give few hints on bond-buying taper timeline

[WASHINGTON] Federal Reserve Chair Jerome Powell's highly anticipated speech to the Jackson Hole economic conference on Friday will likely offer few new hints about when the US central bank may start reducing its massive asset purchases, analysts said.

But Mr Powell could tackle the sensitive task of explaining why tapering the US$120 billion in monthly purchases of Treasuries and mortgage-backed securities doesn't mean an imminent interest rate hike, advancing an effort by Fed policymakers to keep traders from pushing up borrowing costs more than the central bank may feel is warranted or healthy for an economy with millions still unemployed.

"He will do his best to say these are independent decisions ... and one does not necessarily speed up the other," said Steve Kelly, a professor at the Yale School of Management. "That's the biggest challenge ... this communication around tapering and rate increases." Fed officials agree.

The minutes of their July 27-28 policy meeting show that many thought it would be important to emphasize there is no "mechanical link" between a bond-buying taper and rate hikes.

Rejecting that link won't be simple. Many Fed officials also felt it would be better to end the bond-buying programme before raising rates. And they continue to debate whether to dial down the purchases quickly or stretch them out, for perhaps as many as eight months.

Additionally, some policymakers argue the bond purchases aren't helping much anyway, since they are aimed at bolstering demand but can't address the bottlenecks businesses face as they struggle to meet that demand as the economy rapidly reopens.

With so much unsettled, the odds were always long that Mr Powell would use his remarks to the Kansas City Fed's central banking conference, which normally takes place in Jackson Hole, Wyoming, but is being held virtually for the second straight year, to satisfy investors' craving for taper timeline details.

That's especially so now, as the surging Delta variant of the coronavirus shows signs of slowing the US economic recovery, particularly in regions of the country hardest hit by infections. The data raises new questions about what appeared to be an emerging internal consensus at the Fed's meeting last month for beginning to withdraw its extraordinary support for the economy later this year.

Even Dallas Fed Kaplan, among the biggest supporters at the central bank of an early taper, said last week he is starting to see signs of Delta's impact and will keep an open mind in the run-up to the Fed's policy meeting next month.

"It's hard to imagine the Fed committing to a specific tapering timeline in light of the ongoing public health crisis," Aneta Markowska, a Jefferies economist, said of Powell's upcoming speech.

Economists polled by Reuters expect the US economy to add another 725,000 jobs this month, on top of the nearly 1.9 million gained in June and July. And inflation - a fresh read of which be released shortly before Mr Powell's speech - has been running above the Fed's 2 per cent goal for months, though most US central bank policymakers expect it to moderate later this year.

REUTERS