Wall Street reaches a new peak as Powell allays taper fears

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Amid a record-breaking close on Wall Street, Asian markets surged on Monday as Federal Reserve Chairman Jerome Powell said the central bank would take its time winding down its ultra-loose monetary policy and was not in a rush to raise interest rates.

Powell said the world’s top economy was well on its way to recovery from last year’s pandemic-induced collapse, with millions of jobs restored and growth at its highest level in decades, in a widely watched address on Friday. The Federal Reserve’s bond-buying programme, as well as massive government expenditure worth trillions of dollars, gave essential support and fueled a year-long equities market surge.

However, traders have been discussing for months when the crutch will be removed in order to keep inflation under control and the economy from overheating. Powell also assuaged concerns about the bank’s strategy in a speech to a Jackson Hole symposium of central bankers, saying “it could be appropriate to start reducing the pace of asset purchases this year”.

However, he noted that this would not be a precursor to a rise in borrowing costs shortly after, instead taking into account the Delta variant’s impact on the recovery. “As widely expected, Fed Chair Powell’s Jackson Hole speech did not provide a definitive answer to the… tapering decision,” said National Australia Bank’s Rodrigo Catril. “But his dovish undertones on his views on inflation as well as the emphasis on decoupling the rate hike decision from… tapering resulted in a risk positive market reaction.”

He added that Friday’s release of jobs data for August will be key, with a strong reading raising the possibility of a start to tapering in September.

“But our sense is that in October the (policy meeting) is likely to have a better sense of the state of the labour market following the end of the unemployment benefit closing in September, kids back at school as well as the impact from Delta infections on the labour market.”