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Stocks rise as Jerome Powell takes cautious stance on stimulus withdrawal during Jackson Hole address

August 27, 2021 / 10:07 PM IST
US Federal Reserve chief Jerome Powell

US Federal Reserve chief Jerome Powell

Stock markets jumped Friday after Federal Reserve chief Jerome Powell took a cautious stance on a potential withdrawal of the central bank's huge economic stimulus measures later this year.

Wall Street rebounded from losses while European stock markets rose after a quiet day as Powell delivered his much-anticipated speech at the virtual Jackson Hole central banking symposium.

Powell's address to the annual Jackson Hole central banking symposium was closely watched for an idea about plans to reduce the bond-buying that has helped support the pandemic recovery.

Also Read | US Fed chair Jerome Powell hints at tapering of easy money policy by year-end

Analysts say the timing of the taper is crucial as it could also give an indication of when to expect interest rates to go up.

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Powell said that despite the impact of the Delta variant of Covid-19, the economy has continued to recover and show strong job growth.

He repeated the Fed's stance that "it could be appropriate to start reducing the pace of asset purchases this year."

But he stressed that there was no hurry to raise interest rates, arguing that current inflation pressures will be temporary.

His remarks came after some other Fed members had argued that the bank could taper its asset-buying scheme this year.

"We finally heard from the Fed Chairman and the markets loved it, even though he said what many had expected, that tapering bond purchases could begin before the end of the year," said Fawad Razaqzada, market analyst at ThinkMarkets.

His comments were "interpreted by the market as the Fed Chair offering no fresh news and people who had betted on him providing some clear tapering timeline were left disappointed," Razaqzada said.

Asian markets, which closed before the speech, ended the day mixed.

'Assuaged and reassured investors'

Powell spoke after new official data showed that a key US inflation gauge climbed again last month. Income shot higher, too.

The personal consumption expenditures (PCE) price index -- the Fed's preferred measure of price increases -- rose at a rapid 4.2 percent pace in July compared to the same month in 2020.

"Investors brushed off the previous day's concerns on the taper timetable as Chairman Powell walked a potential tightrope with aplomb," Interactive Investor analyst Richard Hunter told AFP.

"The balanced rhetoric both assuaged and reassured investors, sending markets sharply higher," he said.

The surge followed a drop on Wall Street on Thursday, with sentiment jolted by geopolitical concerns after a suicide attack at Kabul airport that left scores dead, including 13 US servicemen.

The bombing, claimed by the Islamic State group, left scenes of carnage outside the airport where thousands of Afghans had massed, desperate to flee their country.

US President Joe Biden, under enormous pressure over his administration's handling of the Afghan crisis, has vowed to retaliate.

Meanwhile oil prices, which have enjoyed a strong run this week after recent hefty selling, saw more big gains on Friday as traders bought into the view that the Delta variant's spread will only delay the economic recovery and demand will continue to improve.

OPEC nations and their producer allies will hold their latest virtual output meeting next Wednesday.

Key figures around 1545 GMT

New York - Dow: UP 0.6 percent at 35,435.74 points

London - FTSE 100: UP 0.3 percent at 7,148.01 (close)

Frankfurt - DAX 30: UP 0.4 at 15,851.75 (close)

Paris - CAC 40: UP 0.2 percent at 6,681.92 (close)

EURO STOXX 50: UP 0.5 percent at 4,190.98 (close)

Tokyo - Nikkei 225: DOWN 0.4 percent at 27,641.14 (close)

Hong Kong - Hang Seng Index: FLAT at 25,407.89 (close)

Shanghai - Composite: UP 0.6 percent at 3,522.16 (close)

Euro/dollar: UP at $1.1789 from $1.1752

Pound/dollar: UP at $1.3758 from $1.3700

Euro/pound: DOWN at 85.69 pence from 85.78 pence

Dollar/yen: DOWN at 109.92 yen from 110.09 yen

West Texas Intermediate: UP 1.9 percent at $68.70 per barrel

Brent North Sea crude: UP 1.9 percent at $72.42 per barrel
AFP
first published: Aug 27, 2021 10:07 pm
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