Weekly Market Update (30 August 2021) – Powell sees QE tapering before end of this year
AUG 30, 2021
(1) During the Jackson Hole Symposium last Friday, Federal Reserve Chairman Jerome Powell delivered a hawkish tone, saying that the central bank is likely going to taper quantitative easing before the end of the year. Chairman Powell shared his view that “the ‘substantial further progress’ test has been met for inflation. There has also been clear progress toward maximum employment.” However, he also clarified that “the timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test”. This is because employment in the U.S. is still far from the Fed’s mandate of maximum employment. Furthermore, Powell wants to see that the recent rise in inflation is sustainable over a longer period of time before being convinced that the Fed’s 2% inflation target is met.
(2) Last Tuesday, Reserve Bank of New Zealand (RBNZ) Assistant Governor Christian Hawkesby clarified during an interview that the reason behind the central bank’s decision to hold back on an interest rate hike is communication challenges and not the economic risk caused by the COVID Delta variant. He explained further that it will be hard to explain an interest rate hike on the same day the country went into lockdown. Hawkesby also mentioned that the RBNZ committee was considering a rate a hike of 0.50%. As a result of the hawkishness, the New Zealand dollar strengthened across the board.
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