Last night, another performance by Jerome Powell took place. However, the foreign exchange market did not react to it in any way for two reasons. First, during the day, the US currency rose quite a lot against both the euro and the dollar. Secondly, the head of the Fed only casually touched on the most important issues. It should be noted that Powell distributed comments and answered questions during a video conference with representatives of the US education sector. The head of the Federal Reserve noted that the virus is still present in the life of mankind, and people and businesses should learn to live hand in hand with it. Powell said that he does not know whether the delta variant, as well as the new iota strain, will have an impact on the state of the economy. Regarding the labor market, Powell noted that several million more people from the service sector are still out of work. The service sector is therefore still recovering and this process is far from being completed. Indirectly, the head of the Fed also touched on the topic of curtailing the quantitative stimulus program, saying that the regulator is in the process of canceling emergency instruments in crisis situations. At the end of his speech, Powell noted that the Fed is independent of political influence.
What can we say about this performance of Jerome? By and large, two points should be noted. First – the labor market is still far from its pre-crisis levels. It can be recalled that until the Fed comes to the conclusion that the labor market has fully recovered or is close to it, it makes no sense to expect a serious tightening of monetary policy and a curtailment of incentives. The second is that the Fed is at the stage of discussing the curtailment of the QE program. Thus, in a way, Powell contradicted himself yesterday. On the one hand, QE will be completed when the labor market fully recovers, and on the other hand, the Fed is already discussing the completion of emergency measures. Thus, the situation with the QE program and the timing of its completion has not exactly become clearer. However, the markets did not really expect that Powell would delve into monetary policy issues in a conversation with teachers. All attention will now be turned to the economic symposium in Jackson Hole, which will be held next week. It is there that many expect Jerome Powell to be more frank about the end of the QE program. Many are waiting for specific statements from the representatives of the Fed on the timing of the curtailment of the asset purchase program at the meeting in September. Thus, the markets are preparing for tightening, and the US currency may receive support due to these actions of the regulator. But US stock indices can calmly continue to grow as long as the Fed still continues to fill the American economy with liquidity.
