Following the FOMC minutes, the attention turns to the Jackson Hole symposium later this week. We expect that the Fed would make formal announcement of QE tapering at the November meeting. With a tapering size of US15B at each meeting, the entire QE program would be complete by September 2022. As the big picture of the tapering path has been depicted in the minutes, Chair Powell’s speech at the upcoming symposium will likely focus on the case for the tapering and the associated risks.
Since the announcement to taper would likely be made in November, we do not expect Powell to send much hint about Fed’s move in the September FOMC meeting. This would be significantly different from the Jackson Hole symposium in 2013, at which the then-Chair Ben Bernanke strongly suggested that a September taper is more likely than not.
Powell’s focus of the symposium would be economic developments and the cases for tapering. The strong employment data was not due before the July meeting. As noted in the minutes, “most” participants judged that “substantial further progress” toward the maximum-employment goal had not yet been met, although “most” believed that this standard would be met by the end of the year. We expect Powell to shed more light on the progress of the employment goal.
Meanwhile, the minutes also revealed that “several participants indicated that they would adjust their views on the appropriate path of asset purchases if the economic effects of new strains of the virus turned out to be notably worse than currently anticipated”. It would not be surprising if the Chair cautions over the recent resurgence of the pandemic.
On inflation, Powell would reaffirm that the sharp rise in the general price level is transitory. He should also reiterate that the stance that the Fed would adjust the stance of policy if there are signs that “longer term inflation expectations were moving materially and persistently beyond levels” consistent with its goal.
Key US data this week include personal income and consumption report for July (due Friday). The report will include the latest core PCE inflation data, the Fed’s preferred inflation gauge. These data would be released ahead of Powell’s speech in Jackson Hole.