2021.08.2714:28:00UTC+00Powell Indicates Tapering Likely Before Year-end, But Says Rate Hikes Unlikely

During his much anticipated speech at the Federal Reserve's annual Jackson Hole symposium on Friday, Federal Reserve Chairman Jerome Powell said the central bank is likely to begin tapering some of its easy-money policies before the end of the year.

However, he added that he still feels there's "much ground to cover" before rate hikes.

Powell said the economy has reached a point where it no longer needs as much policy support, indicating the Fed might start reducing the amount of bonds it purchases each month before the end of 2021, provided the economy continues to progress.

"The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test," Powell said in prepared remarks for the virtual summit.

He added that while inflation is solidly around the Fed's 2% target rate, "we have much ground to cover to reach maximum employment," which is the second prong of the central bank's dual mandate and necessary before rate hikes happen.

The Fed chair also explained why he continues to think the rise in inflation is transitory and will drop eventually to the target level. He said that "test has been met" for inflation while there "has also been clear progress toward maximum employment."

He added that some of the factors that pushed inflation higher are starting to abate. "Inflation at these levels is, of course, a cause for concern. But that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove temporary," he said.

Powell added that he and other policymakers in the Fed agreed at the July Federal Open Market Committee meeting that "it could be appropriate to start reducing the pace of asset purchases this year."

On the employment front, Powell noted that the delta variant of Covid "presents a near-term risk" to getting back to full employment. However, he said "the prospects are good for continued progress toward maximum employment."