Quick take on Jerome Powell’s Jackson Hole speech
Timothy Ng
Portfolio manager and interest rates analyst
Thomas Hollenberg
Fixed Income Portfolio Manager

Following Federal Reserve Chair Jerome Powell’s speech at the central bank’s annual Jackson Hole summit on 27 August, Tim Ng and Tom Hollenberg, fixed income portfolio managers and members of Capital’s US rates team, share a brief summary of their views.

In his speech, Chairman Powell indicated that the US Federal Reserve (Fed) is on track to begin tapering its $120 billion-per-month asset purchase program later this year and shared a dovish view on US inflation.

His comments largely mirrored the message from the minutes of the Federal Open Market Committee’s (FOMC’s) meeting in July. Most Fed officials said then that they believed it would be appropriate to begin scaling back bond purchases, “provided that the economy evolved broadly as they anticipated.”

Powell’s speech also shed some light on his outlook for US inflation. While headline and core personal consumption expenditure inflation have been running well above the Fed’s 2% target, and businesses and consumers are widely reporting upwards pressure on prices, Powell laid out a number of factors that suggest these elevated inflation readings may prove temporary: 

  1. So far, the inflationary pressures are largely concentrated in a narrow group of goods and services
  2. Prices in those categories are beginning to moderate
  3. Wage increases appear consistent with their longer-term inflation objective
  4. Long-term inflation expectations have been stable
  5. Global disinflationary forces remain

We question Powell’s assessment that inflationary pressures remain narrow, as inflation has been running well above historic levels across a broad range of sectors, including apparel, transportation goods and services, shelter and household furnishings.

Average month-over-month change in inflation by sector1

We explained in June why we think the market’s view on transitory inflation may be misguided and have seen nothing so far to alter our outlook. Powell’s remark that inflation may prove transitory is notable as it stands in contrast to the views expressed by other Fed officials in recent interviews. Several regional Fed presidents have said that inflationary pressures may linger longer than expected.

One explanation for these opposing views may be that Powell is trying to create space between the taper decision and rate increases now that the former is more imminent. Powell reiterated that the Fed’s decision to taper would not “carry a direct signal regarding the timing of interest rate lift-off.” It appears to us that the Fed is trying to avoid a repeat of the 2013 taper tantrum, when then-chair Ben Bernanke sparked a selloff in Treasuries and risk assets by suggesting that the Fed might slow its bond buying activities. Also, by distancing the rate hike decision from a taper announcement, Powell hopes to create some policy space for the FOMC once the reduction of purchases is underway.

This sets up a pivotal update from the Fed at its 22 September meeting. Hawkish members of the FOMC have been calling for an official announcement on tapering to be made at that time. If the next releases of employment and inflation data continue to show elevated numbers, the hawks’ hands would be strengthened. Powell may try to steer Committee members to a November announcement, which would allow them the luxury of reviewing more data and getting a better sense of the impact of the delta variant before starting to taper.


1. Source: Bureau of Labor Statistics. As of 30 June 2021.


Risk factors you should consider before investing:
  • This material is not intended to provide investment advice or be considered a personal recommendation.
  • The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
  • Past results are not a guide to future results.
  • If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
  • Depending on the strategy, risks may be associated with investing in fixed income, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.

Timothy Ng  is a fixed income portfolio manager with 16 years of investment industry experience (as of 31/12/2021). He holds a bachelor’s degree with honors in computer science from the University of Waterloo, Ontario.

Thomas Hollenberg is a fixed income portfolio manager with 15 years of industry experience. He holds an MBA in finance from MIT Sloan School of Management and a bachelor's degree in economics from Boston College.

Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.