On Friday, US stocks hit a record high as investors took assurance from comments by Jerome Powell that the withdrawal of stimulus would be gradual.
The S&P 500 index rose after the Federal Reserve chairman's much-anticipated Jackson Hole address, where he reinforced the message that it would be appropriate to begin tapering bond purchases by the end of the year. It allowed for a 0.9% gain by 10:33 pm MSK, which resulted in the dollar's fall.
Powell said the economy has now met the test of "substantial further progress" toward the Fed's inflation objective, while the labor market has also made "clear progress." These remarks came as the latest reading of a closely watched measure of inflation elevated, highlighting the case for starting policy normalization despite the threat of the delta virus variant on the economic recovery.
"Investors are breathing a sigh of relief as Powell suggests a kinder, gentler Fed tightening," said Mike Bailey, director of research at FBB Capital Partners. "Judging by the equity move, my sense is mainstream investors expected a harder line from Powell about tapering starting in the fall and rate hikes locked in for late 2022 or early 2023."
During the speech, Powell also drew a line between asset purchases and interest rates, saying the Fed would not be in a hurry to begin increasing rates after it begins tapering its $120-billion-a-month bond-buying program.
"I would fully expect that they will formally start slowly cutting asset purchases in October," said Jeffery Elswick, director of fixed income at Frost Investment Advisors, targeting a September announcement."But as long as they continue to be ultra dovish on future rate hikes, I do not think it will create a huge market reaction at least initially."
The next risk factors will likely come from economic reports, given the market's experience with communicating quantitative easing, Kevin Caron, senior portfolio manager at Washington Crossing Advisors said.
