Jul 29, 2021 - Economy

Fed press conference focuses on all things tapering

Picture of Jerome Powell

Photo: Susan Walsh/Getty Images

Federal Reserve chair Jerome Powell’s Wednesday press conference focused on all things tapering.

Why it matters: With a rate liftoff not expected until the end of next year at the earliest, a tapering — or reduction — of the Fed’s $120 billion per month asset purchases will be the first significant pullback of its emergency pandemic market support.

  • The last time the central bank pulled back on major asset purchases, in 2013, the surprise led to a Treasury sell-off — or “taper tantrum.” The Fed wants to avoid that this time.

State of play: The Federal Open Market Committee’s Wednesday statement says that the economy has made progress toward the committee’s goals — a prerequisite for tapering and an acknowledgment that wasn’t in its June statement.

What they're saying: Powell said in the press conference that the committee discussed how it could adjust the pace and composition of the asset purchases — currently $80 billion in Treasuries and $40 billion in mortgage-backed securities.

  • Composition is a hot topic as surging home prices have led to questions over whether the Fed should still be propping up the MBS market. Critics' thinking is that the Fed should taper MBS sooner or faster than Treasury purchases.
  • Powell knocked that down, saying there's "little support" for that idea.

What's next: The hunt for taper timing hints is on. The statement says the committee will continue to assess progress in coming meetings (plural) — leading many to surmise an announcement won't come at the FOMC's August Jackson Hole gathering, or its September meeting.

The bottom line: Unless inflation rates jump high enough to worry the Fed, it's all about jobs growth over the next few months. And Powell is pretty optimistic about the state of the labor market.

  • "We're clearly on a path to a very strong labor market, with high participation, low unemployment and wages moving up," Powell said, adding that "it shouldn't take that long" to get there.

Go deeper: Powell isn't concerned by Delta surge

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