In that exercise of precarious stability that monetary policy has become at the time of the Coronavirus and its many variants, Jerome Powell is a perfect tightrope walker. It is the man on the trapeze who never risks falling. It may be that Jay is at the end of his mandate, and therefore the reconfirmation is played at Eccles Building, but yesterday at the Jackson Hole symposium the president of the Fed managed to give the classic blow to the circle and the barrel. Something that Wall Street really likes. While, in recent days, the central bank hawks had squadernated urbi et orbi times and ways of withdrawing aid from 120 billion dollars a month (a securities purchase plan that in just over a year doubled the budget, to 8,400 billion), Janet Yellen’s successor merely said that the Fed is ready to start tapering “before the end of the year”, as the economy has reached a point where it no longer needs as much support, but without indicating a time schedule.
You know: Powell is guarded by nature. Trump, who had framed him as a Don Abbondio of the third millennium, one unable to give himself courage and therefore ready to give cord to his juggling as a good Manzonian, in the end bent his resistance on aid and rates. Now The Donald is gone, and the head of the Fed can make prudence a virtue much appreciated by the markets. The lack of timing is related to the intention to avoid a too violent reduction in aid which could be – he says – “particularly harmful” at a time when the Delta variant is in circulation and its impact on the economic recovery. Therefore: closing of the liquidity taps calibrated on the basis of the trend of the pandemic and the degree of resistance of the recovery. Without ex ante commitments. It is likely that the Washington institute will take time for the next meeting, scheduled for 21 and 22 September, and then announce in November, or the following month, the start of the phasing out of stimuli. According to the information available, Powell draws a scenario in which the labor market has “improved more than expected”, but unemployment, although it has fallen to 5.4%, is still “too high”. Compared to the “quench, cut off” a few months ago, the Fed then shows that it is a little more worried about inflation. The “core” market, free of volatile elements such as energy and food prices, grew by 3.6% in July compared to a year earlier; the overall figure rose 4.2%, the largest increase since 1991. Powell views inflation as “high”, even though the conditions that led to the increase “are already dissolving. There is no reason to believe “that global deflationary forces” suddenly diminished or reversed pace “.
This flight plan seems to indicate that the time, initially expected by 2023, when rates will be raised will be further postponed. On the other hand, the Fed’s mandate provides for a condition of full employment before cracking down on the cost of money. “We have a lot of ground to cover to achieve this goal,” admitted Powell, noting that tapering “is not intended as a direct signal on the timing of an increase in interest rates.”
Dove words appreciated by the markets. Especially from Wall Street, where Nasdaq (+ 1.12% one hour after closing) and & P 500 (+ 0.8%) set new records, while in Europe Milan gained 0.56%. – and the owls – can wait.