Today will mark the end of the Jackson Hole Symposium - one of the Federal Reserve’s most important monetary policy discussion events of the year. Chairman Jerome Powell will be giving a speech at 14:00 GMT in which he is going to reveal the results of the symposium and outline what is next for monetary policy in the United States.
Economists and investors alike were looking forward to the Jackson Hole Symposium because the United States is currently on the precipice of a monetary policy shift.
Thanks to over a year of stimulus measures by both the Fed and the US government, there have been substantial improvements in the economic situation in the United States. The Fed is looking at both inflation and employment as the two most important factors to determine whether the economy needs any more help or not.
Inflation has been consistently over the forecasts for the past few months, growing so rapidly that economists started fearing that the economy would overheat from too much stimulus.
Nevertheless, improvements in the US labor market have been much slower, with the NFP only recently getting closer to the forecasts and jobless claims still delivering somewhat mixed results. That being said, some members of the Federal Reserve warned that there is only so much that the central bank can do for employment and that continued stimulus might not lead to lower unemployment.
Thus, recent statements by voting governors of the Federal Reserve have indicated that the majority might now favor a more hawkish approach to monetary policy, having exhausted the benefits of stimulus by this point.
While an interest rate hike is not on the schedule at least until late 2022, likely not until 2023, a tapering of asset purchases is now officially on the table. Jerome Powell promised to give the markets an early enough notice when policy is about to shift, which is why so many eyes are on the Jackson Hole Symposium right now.
This event will give Powell the perfect opportunity to announce a timetable for reducing asset purchases, just a few weeks in advance of the September monetary policy meeting of the Fed, when the first reduction could be voted on.
Still, due to the rise in coronavirus infections in the United States, some economists now appear to think the Fed might wait until November to adjust purchases. In any case, Powell will most likely discuss the schedule for tapering today.
Needless to say, a speedy tapering will bolster the US dollar, while a postponement due to the coronavirus pandemic will weaken it. Thus, today’s speech will be crucial for most major pairs.
