Here’s what analysts now expect Fed’s Powell to say about tapering at Jackson Hole event

Amid widespread buildup to Friday’s speech by Federal Reserve Chairman Jerome Powell during the annual Jackson Hole symposium, analysts now say he may remain vague around the timing of any tapering process, given the risks to the economy from the continuing pandemic.

Investors have been looking for clues as to how rising U.S. COVID-19 cases may affect the debate over the timing on scaling back monetary stimulus. Now that the Federal Reserve has moved the gathering online, some see a possibility that Powell offers few specifics, to retain flexibility around the central bank’s options. Even before the event went virtual, though, options traders have been treating Jackson Hole like a nonevent.

Read: Investors look for Fed clues on tapering as Jackson Hole goes virtual because of delta variant

The major U.S. stock indexes, the Dow Jones Industrial Average
DJIA,
the S&P 500 index
SPX
and Nasdaq Composite Index
COMP
all rose in tandem Monday.

Expectations of a slightly more dovish posture from Powell also come after Dallas Fed President Rob Kaplan on Friday said he may rethink his call for the central bank to quickly start to taper its $120 billion per month in purchases of Treasurys and mortgage-backed securities, if it looks like the spread of the coronavirus delta variant is slowing economic growth.

Here’s what analysts are saying about the coming virtual event:

  • Rabobank strategists Richard McGuire and Lyn Graham-Taylor write in a note: While recent U.S. labor data remain firm, “the continuing elevated threat from the Delta variant surely argues that the most one might expect from Powell is an acknowledgment that the tapering discussion will remain live in the coming months rather than providing an informal pre-commitment to paring back asset purchases.”

  • Tom di Galoma, managing director of rates trading at Seaport Global Holdings: “Based on the recent FOMC minutes, we believe the Fed will not announce a Taper at Jackson Hole and will most likely announce a Taper in November or December.” The Seaport Global executive said that “the tapering will be very gradual taking place in 2022 over 10-12 months and possibly longer. In our view, there is a 30% probability that the Delta variant and/or a geo-political crisis could actually delay taper all together.”

  • Craig Erlam, a London-based senior market analyst for Oanda: What was looking like a fairly straight forward move “now brings significant doubts.” “Jackson Hole looked the ideal platform for a taper warning but now, officials may be more inclined to see how the data unfolds over the weeks before the September meeting before dropping any major hints,” the analyst said.

  • Lindsey M. Piegza, chief economist of Stifel: “While a formal announcement is unlikely until the end of the year given the cautious nature of the central bank management team, the Chairman is likely to drop a hint—potentially a large hint—in terms of the outline for the expected pathway of taper.” The economist added: “In other words, the Chairman is likely to offer few specifics, remaining just vague enough to ensure wiggle room should the Delta variant lead to a significant and meaningful slowdown in activity, yet reinforce expectations and ensure market readiness for a formal announcement by year-end to commence a reduction in purchases beginning in the new year.”

  • BMO Capital Markets Ian Lyngen and Benjamin Jeffery: “Investors are awaiting any insight on the timing of the Fed’s tapering announcement, although we suspect the Chair will leave ample room for ambiguity to ensure flexibility as concerns continue to mount regarding the most recent wave of the pandemic.”

  • Bruce Kasman, Joseph Lupton and Michael Hanson of JPMorgan Chase & Co. wrote in a note: “The minutes to the July FOMC meeting leave intact our view that there is unlikely to be a policy announcement at the Jackson Hole conference and that the announcement of tapering will come sometime next quarter.”

Harry Byrne

Harry Byrne

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