Week in Review: August 27, 2021

U.S. equity markets ended the week at new record highs following comments by Federal Reserve Chair Jerome Powell that implied the Fed will proceed carefully when it begins tapering its asset purchases, likely later this year. Full approval of Pfizer’s COVID-19 vaccine by the FDA also contributed to positive market sentiment.

Powell delivered his highly anticipated Jackson Hole speech on Friday. In it, he addressed a number of topics including labor markets, inflation, and the omnipresent question of when the Fed expects to begin tapering its asset purchases. Regarding the labor market, Powell noted that it has “brightened considerably” in recent months and that “the prospects are good for continued progress toward maximum employment.” On the topic of inflation, the Fed chairman acknowledged current levels are “a cause for concern” before reiterating that “these elevated readings are likely to prove temporary.”

Finally, with respect to tapering, Powell suggested it could begin later this year, without providing a firm date. Importantly, he noted that tapering “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.”  In other words, rates may well remain at current levels for an extended period of time following the conclusion of its asset purchase program. Should the August employment report surprise to the upside, the Fed may formally announce its tapering plans as soon as its September meeting. However, a disappointing report might delay an announcement until its November meeting.