On Friday, stock prices hit new highs on Wall Street as US Federal Reserve Chairman Jerome Powell expressed alarm about rising Covid-19 infections but provided no new information on when the Federal Reserve would begin to reduce its stimulus program.
While the economy was recuperating from the epidemic, the Fed chairman said he and his colleague's policymakers were closely monitoring the impact of the Delta strain of the coronavirus during a virtual summit of central bankers in Jackson Hole, Wyoming.
Powell's comments were significantly less hawkish than some Wall Street analysts had predicted, and the financial markets reacted immediately.
In the immediate aftermath of the Fed's chairman's speech, the S&P 500 and the technology-dominated Nasdaq share price indices both set record highs, while the dollar and US Treasury bill yields both fell.
Wall Street was expecting Powell to lay out plans to begin unwinding the Fed's asset-buying program, which has been giving support to the US economy. Instead, he cautioned that fast policy tightening might be “particularly harmful” to jobs.
The bank's top policy-making body, the federal open market committee (FOMC), indicated in July that current trends supported starting the taper by the end of the year.
“At the FOMC's recent July meeting, I was of the opinion, as were most participants, that if the economy evolved broadly as expected, it might be appropriate to start reducing the pace of asset purchases this year,” Powell said, referring to signals that the pace of US growth may be slowing.
“In the interim, more progress has been made in the form of a strong employment report for July, as well as the spread of the Delta variant. We'll be evaluating the incoming data as well as the evolving risks.”
While the fact that US inflation was running at double its target of 2% was concerning, Powell stated that the present high readings were likely to be temporary due to a number of variables.
He noted that there was little evidence of a wage-price spiral and that inflation in many industrialized nations had remained below 2% even in good times since the 1990s.
“While the underlying global disinflationary factors are likely to evolve over time,” he said, “there is little reason to believe they have suddenly reversed or abated.”
“As the pandemic fades from memory, it appears more likely that they will continue to weigh on inflation.”
