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Key takeaways from Fed Chair Jerome Powell’s Jackson Hole speech

In this article:
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Brian Cheung joins Myles Udland, Brian Sozzi, and Julie Hyman to break down Fed Chairman Jerome Powell’s remarks at the virtual Jackson Hole meeting and the market’s reaction to the speech.

Video Transcript

MYLES UDLAND: Federal Reserve Chair Jerome Powell's full comments from the virtual Jackson Hole Economic Symposium. Let's take a look at the market reaction, and a clean one here. Stocks like it. We've got the S&P 500 trading at a record high, above 4,500. NASDAQ back above 15,000. The Dow, 35,440 at this hour. Ultimately, a dovish read, it appears, from risk markets here on the Fed chair's commentary.

Let's bring in our panel once again. We heard from Brian Cheung, our Fed reporter, who had the speech ahead of time. So you Brian Sozzi, let's go to you. We'll start with you and Julie on your views on this. Three of us going through it for the first time. Sozzi, what stood out to you in Powell's commentary?

BRIAN SOZZI: No, you really hit the nail on the head, Myles. Bullish reaction here by the market, as it should be. What really stood out to me is some comments that the chairman made towards the end of his speech there, regarding that the tapering of bond purchases doesn't mean that they will be embarking on an interest rate hiking cycle any time soon. I think that was a very interesting mention by him.

And really to suggest that, I think, just telling the market, listen, we might be done by tapering maybe the middle of next year towards the summer, whenever that might be. But that doesn't mean we're going to follow that up immediately with rate hikes. I think that was very important, Julie.

JULIE HYMAN: Yeah. I mean, it seems like he is trying to kind of signal here that we'll tell you when we're actually going to be doing rate increases of some sort. In other words, don't take this to mean, just because we're tapering, that we then are going to be raising rates. He said that this is not intended to carry a direct signal regarding the timing of interest rate liftoff.

Perhaps that's reassuring to the markets. It's unclear to me if that's something that people are keying in on here, that it's not an if-then proposition, Myles. I don't know.

BRIAN CHEUNG: Yeah, well, I think Julie, to that point, right, it is a noticeable change, though. The Fed chairman has switched his explanation of the taper from, we're going to give everyone proper notice, we're going to make sure everyone has enough heads-up about when we'll actually announce a taper, to actually putting a time frame on it.

So again, it's really not that concrete. But him laying out in his remarks just a few minutes ago that he could see it appropriate to start reducing the pace of asset purchases this year does put three meetings on the table in September, in November, and then December for an actual announcement of the taper. So I think that is his head's-up.

I think he's past the point of telling markets, we'll let you know when this is going to happen. I think that is kind of him letting the markets know this is going to happen. It's just a matter of which meeting that's going to be in.

But I think the reason why markets like it is because they see him as not eager to launch that process or announce anything in September. Now, of course, there's still a month's worth of data that could come in. He was saying on the inflation side, he seems that it looks like it's already made substantial further progress but said there's only been clear progress on the employment side of things, when you have to keep in mind we're going to get one more round of data on the employment situation next Friday covering the month of August.

So if that comes in hot, maybe that does put it on the table. But again, you have to balance that against the crux of the beginning part of his speech where he said, look, if you tighten policy too quickly, that could be particularly harmful. Very interesting to see the Fed chairman use that kind of language with regards to that.

Now, of course, tapering is not necessarily tightening. But if it is indeed the first step towards tightening, that does indeed point to the Fed chairman's reluctancy to want to pull back too quickly.

MYLES UDLAND: Well, and that's not just a theoretical concern for Powell. He was the Fed chair when they raised policy too aggressively. In Powell's view, they made a policy error. I mean, he has said this many times in so many ways.

In 2018, when Powell stepped in as Fed Chair and he continued the rate hiking cycle that had been begun by Janet Yellen and they raised rates four times, and ultimately, we saw a 20% selloff in the market as a result. And then they swiftly reversed that policy, basically saying, we screwed up.

And Powell, given that he was in the big seat when that happened, is very much of the mind that I will not forget that. And I do think here, per our conversation earlier-- and sure, it is speculation, Brian Cheung, but ultimately, I think he's signaling to the powers that be that if you renominate me for the big seat for four more years, I won't do this. I promise I've learned my lesson, dad.

BRIAN SOZZI: Yeah, certainly. And we'll see if that does weigh, if White House does announce something in the coming weeks or months. But although he's not directly saying anything in that speech, that certainly could be one way of reading the subtext there.

MYLES UDLAND: Yeah. I mean, he's not going out and-- let's say this. He's not criticizing a different Fed Chair for tightening policy too quickly. I think Powell's been very willing to accept his shortcomings and also his strengths. His flexibility has certainly been a strength of his as Fed Chair, given his background is a little bit different.