Share prices hit fresh records on Wall Street on Friday after the head of the US central bank, Jerome Powell, expressed concern about rocketing Covid-19 infections and gave no new clues on when the Federal Reserve would start to ease back on its stimulus programme.
Speaking at the virtual gathering of central bankers at Jackson Hole in Wyoming, the Fed chairman said that, while the economy was recovering from the pandemic, he and his fellow policymakers were carefully monitoring the impact of the Delta variant of the coronavirus.
Powell’s remarks were far less hawkish than some Wall Street analysts had expected and had an instant impact on the financial markets.
The S&P 500 and the technology-dominated Nasdaq share price indices both reached new peaks in the immediate aftermath of the Fed’s chairman’s speech, while there were falls in both the dollar and yields on US Treasury bills.
Wall Street had been braced for Powell to flesh out plans to start tapering away the support the Fed has been providing to the US economy through its asset-buying programme. Instead, he warned that an over-hasty tightening of policy could be “particularly harmful” to jobs.
In July, the bank’s main policy setting body, the federal open market committee (FOMC), had said that on current trends there would be a case for starting the taper by the year’s end.
But amid some signs that the pace of US growth might be slowing, Powell said: “At the FOMC’s recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.
“The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant. We will be carefully assessing incoming data and the evolving risks.”
Powell said that while it was a concern that US inflation was running at double its 2% target, a number of factors meant the current high readings were likely to be temporary.
There was little sign of a wage-price spiral and, since the 1990s, inflation in many advanced economies had run somewhat below 2% even in good times, he added.
“While the underlying global disinflationary factors are likely to evolve over time, there is little reason to think that they have suddenly reversed or abated,” he said.
“It seems more likely that they will continue to weigh on inflation as the pandemic passes into history.”