The time for the Fed’s annual Jackson Hole symposium has finally arrived – and markets will be watching Fed Chair Powell closely for signs of an unofficial hint for when tapering might start.
The real concern for markets, arguably, has not really been the exact start of the eventual tapering but rather the pace of purchases. Some hawkish members say they want tapering to conclude as soon as possible, but dovish members are against an aggressive move.
However, the covid resurgence brought to light a new dynamic as Fed’s Kaplan, who has been very vocal about his hawkish views for tapering, had some dovish comments about the virus on Friday.
He said even though the resurgence hasn’t affected mobility, it is affecting production output – and if it has a more negative effect on growth, it could cause an adjustment of views. Even though he is just one member, he has been one of the more vocal hawks so that was pretty dovish coming from him.
Even though the Fed was surprisingly sanguine about virus risks in July, the resurgence has evolved quite a bit from then. Back in June the 7-day average was around 12K cases per day, that shot up to 64K per day by the July meeting and going into Jackson Hole it’s currently sitting on 144K per day.
Also, unlike the UK’s resurgence, the US is sadly not holding up as well when it comes to fatalities and could spur further concerns from consumers who are already fearing rising price pressures. Thus, the idea of seeing liquidity being withdrawn while the current resurgence is ramping up and signs that above-trend growth is moderating might be enough for the Fed to take a step back.
As always, there’s more in-depth analysis in this week’s video.