Tag: Fed Chair Jerome Powell

Financials - Clear Runway Ahead?

Posted on by Noah Kiedrowski

The Taper

The Federal Reserve indicated that the central bank is likely to begin withdrawing some of its stimulatory monetary policies before the end of 2021. Although interest rate hikes are likely off in the distance, the economy has reached a point where it no longer needs as much monetary policy support. This pivot in monetary policy by the Federal Reserve sets the stage for the initial reduction in asset purchases and downstream interest rate hikes. As this pivot unfolds, risk appetite towards equities hangs in the balance. The speed at which rate increases hit the markets will be in part contingent upon inflation, employment, and of course, the pandemic backdrop. Inevitably, rates will rise and likely have a negative impact on equities.

A string of robust Consumer Price Index (CPI) readings spooked the markets as a harbinger for the inevitable rise in interest rates. Although rising rates may introduce some systemic risk, the financial cohort is poised to go higher. Moreover, the confluence of rising rates, post-pandemic economic rebound, financially strong balance sheets, a robust housing market, and the easy passage of annual stress tests will be tailwinds for the big banks.

2021 Financial Stress Tests Easily Pass

The recent stress tests were easily passed and indicated that the biggest U.S. banks could easily withstand a severe recession. In addition, all 23 institutions in the 2021 exam remained "well above" minimum required capital levels during a hypothetical economic downturn. Continue reading "Financials - Clear Runway Ahead?" →

What To Expect From This Week's Fed Meeting

Posted on by George Yacik

Was last week’s tiny decrease in the August consumer price index just enough to dissuade the Federal Reserve from announcing this Wednesday that it’s planning to start tapering its massive $120 billion a month asset purchase program? The financial markets and the financial press interpreted (hoped?) the report signaled that inflation might really be transitory after all and that the Fed will have no reason to reduce its purchases—at least not yet.

The headline CPI number rose 0.3% from July, slightly below the prior month’s 0.5% jump. The year-on-year increase came in at 5.3%, down a mere one-tenth of a percentage point from July’s 5.4% pace. That prompted near-euphoria from some analysts that the recent spike in inflation over the past five months had mercifully come to an end, giving the Fed little reason to begin the taper soon.

Needless to say, the release a few days before of the producer price index, which jumped 0.7% from the prior month and 8.3% YOY, got much less attention, even though producer prices often presage higher consumer prices. Indeed, many manufacturers have begun to announce they must and will raise prices and make them stick, meaning inflation is anything but transitory.

The Fed, however, is likely to stick to its earlier policy intention to let inflation run “hotter for longer” and not make a commitment to start tapering just yet, despite recent comments from a bevy of Fed officials—including Fed Chair Jerome Powell—that it is poised to do so. The Fed never said what “hotter” or “longer” meant, but five straight months of 4%-plus annualized inflation may not have met the criteria, whatever it is. Instead, Powell has realigned his focus from inflation to the jobs market, fostering full employment being the Fed’s other mandate. And on that score, following August’s disappointing jobs report, we are definitely not in the taper zone just yet. Continue reading "What To Expect From This Week's Fed Meeting" →

Jackson Hole: The Fed Taper

Posted on by Noah Kiedrowski

Federal Reserve Chairman Jerome Powell indicated that the central bank is likely to begin withdrawing some of its stimulatory monetary policies before the end of 2021. However, the Chairman did note that he still sees interest rate hikes off in the distance. In the Fed’s annual Jackson Hole, Wyoming, symposium, Powell said the economy has reached a point where it no longer needs as much monetary policy support.

Thus, the Fed will likely begin cutting the amount of bonds it buys each month before the end of the year, so long as economic progress continues. Based on statements from other central bank officials, a tapering announcement could come as soon as the Fed’s Sept. 21-22 meeting. Despite this pivot, it does necessarily mean rate increases are looming.

This pivot in monetary policy by the Federal Reserve sets the stage for the initial reduction in asset purchases and downstream interest rate hikes. As this pivot unfolds, risk appetite towards equities hangs in the balance. The speed at which rate increases hit the markets will be in part contingent upon inflation, employment, and of course, the pandemic backdrop. Inevitably, rates will rise and likely have a negative impact on equities.

Rates Hikes

Jerome Powell stated, “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,” He added that while inflation is solidly around the Fed’s 2% target rate, “we have much ground to cover to reach maximum employment,” which is the second prong of the central bank’s dual mandate and necessary before rate hikes happen. Continue reading "Jackson Hole: The Fed Taper" →

Has The Taper Been Tabled?

Posted on by George Yacik

A funny thing happened on the way to the taper, the U.S. jobs market hit a brick wall.

Last week’s underwhelming jobs report for August, which showed the U.S. economy adding only 235,000 jobs—less than a third of the consensus estimate of 740,000 and down sharply from July’s upwardly revised total of 1.05 million, may have put the kibosh on the Federal Reserve’s prospective plan to start reducing its $120 billion a month purchases of government and mortgage securities.

Last month, you’ll remember, Fed chair Jerome Powell, in his Jackson Hole speech, seemed to have joined the bandwagon started by his central bank colleagues calling for the Fed to start the tapering process soon. “If the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year,” he said. However, he also provided this caveat: “Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful.”

Friday’s job report could have provided enough of a reason not to taper, or at least put it on hold. Particularly discouraging was the net no new jobs in the leisure and hospitality industry after adding 350,000 jobs a month over the prior six months, including a net loss of 42,000 jobs in bars and restaurants. Continue reading "Has The Taper Been Tabled?" →

Powell Tempers The Taper Talk

Posted on by George Yacik

Federal Reserve Chair Jerome Powell’s comments at last Friday’s virtual Jackson Hole Economic Symposium received different interpretations from the financial media, but the bond and stock markets seemed to understand that the Fed isn’t going to be embarking on any significant change in its accommodative policies in the near future; i.e., don’t worry about the taper.

According to the Wall Street Journal’s headline, “Powell Says Fed Could Start Scaling Back Stimulus This Year.” But Yahoo Finance had a much more circumspect take. Its headline read: “Powell: Reversing Fed stimulus too early could be 'particularly harmful.’”

“Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful,” Yahoo quoted Powell as saying, although further down in its story, it added an additional quote: “If the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.”

As several other Fed officials stated, that seemed to seal the deal that the Fed will start the asset tapering process sometime in the fourth quarter and maybe wrap it up early next year. Left up in the air is exactly how much the Fed plans to taper and at what point it will stop, although Powell made it sound like it may not happen at all if economic changes intervene. In any event, the markets seemed to like what Powell said, as stock prices rose and bond yields fell. Continue reading "Powell Tempers The Taper Talk" →