Powell turned ever so mildly dovish in his comments to the virtual Jackson Hole Central Bank meeting on Friday. Despite a cadre of Central Bankers calling for an immediate halt to the open market purchases, the Chairman said the Open Market Committee is likely to commence tapering before the end of 2021. We believe the street had set up for more hawkish language, with some looking for an announcement that taper would begin in September. That was a foolish call! While the Fed doesn’t always look to the calendar in making policy announcements, the Chairman had to realize that doing so on the last Friday of August would rock the market. Instead Treasuries traded sideways which was enough to drive the S&P 500 to another record high.
The last several weeks have been typical low-volume, low volatility summer trading in both the equity and bond markets. The 10-year note yield drifted steadily lower during July, falling 24 basis points to end the month at 1.22%. Economic data confirmed that the economy continues to expand at an above trend pace and the “transitory” price hikes continue to bedevil consumers. The most anticipated event of the month was the post-FOMC press conference. Unfortunately, Chairman Powell effectively repeated his comments from the previous press conference with scant details on reversing their easy money policy. One point of clarification, however, is that he doesn’t want to begin tapering open market purchases until the unemployment rate falls closer to where it was before the COVID outbreak.