No Taper, No Tantrum: Powell Alleviates Worries Of Scale-Back In Quantitative Easing

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On the latest edition of Market Week in Review, Senior Quantitative Research Analyst Abraham Robison and Senior Client Investment Analyst Chris Kyle discussed U.S. Federal Reserve (the Fed) Chairman Jerome’s Powell response to market fears of a tapering in the central bank’s quantitative easing (QE) program. They also provided an overview of President-elect Joe Biden’s coronavirus relief plan as well as recent global market performance. 

Powell squashes talk of early wind-down to QE

Amid market concerns that a sharper-than-expected rise in inflation could lead to a tapering of the Fed’s bond-buying program, otherwise known as quantitative easing, Chair Jerome Powell recently stressed that the central bank has no plans to scale back asset purchases any time soon, Robison said.

“Given the clarity of Powell’s Jan. 14 remarks, we expect that the Fed will continue to maintain the pace of quantitative easing by buying $120 billion in bonds through the end of the year,” he stated, adding that the Fed chair also pledged advance notice should conditions warrant consideration of a slowdown in purchases.

These conditions revolve around the Fed’s dual mandate of price stability and maximum employment, Robison explained—and when it comes to satisfying both, the U.S. is still a long way off. For instance, newly released data showed that inflation rose 1.4% in 2020, on a year-over-year basis, which is still well below the Fed’s average target of 2%, he noted. Meanwhile, growth in the U.S. labor market has stalled, with the country reporting 140,000 job losses in December, in addition to a sharp uptick in weekly unemployment claims the week of Jan. 11.

“While numbers like these could be viewed as concerning, Powell stated that he believes the U.S. economy can return to February 2020 levels sooner than envisioned, and expressed reasons for optimism moving forward,” Robison said. All in all, the Fed chair’s remarks served as positive news for markets, he concluded.

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