Aug 27 (Reuters) - The U.S. economy continues to make progress towards the Federal Reserve's benchmarks for reducing its pandemic-era emergency programs, Fed Chair Jerome Powell said on Friday, in remarks that defended the view current high inflation will likely pass and stopped short of signaling the timing for any policy shift.
STOCKS: The S&P 500 hit a record high
BONDS: The 10-year U.S. Treasury note yield extended a drop
FOREX: The dollar index fell
DAVID PETROSINELLI, SENIOR TRADER, INSPEREX, NEW YORK:
"I think the market liked it and they liked it because its part and parcel of this wait and see approach that Powell has adopted…I think generally speaking what he basically did is he probably pushed out the explicit announcement and commencement of tapering into November, because there is the September meeting and after that is November and I think they want to announce it at a Fed meeting, so I think basically what he did is effectively push it off to later in the fourth quarter rather than at the end of the third quarter in September."
"He also was very clear to detach tapering from "the rate liftoff" or raising rates… I think he wants to make sure to condition the market to not expect that the beginning of tapering means the onset of a Fed tightening cycle sooner rather than later, he was very clear to delineate that."
ALAN RUSKIN, CHIEF INTERNATIONAL STRATEGIST, DEUTSCHE BANK
"I think he gave himself maximum flexibility."
"When it all comes out in the wash this doesn't really change anything in terms of expected taper."
"The taper will probably be flagged in September."
"The biggest concern I would have is if the Fed is wrong on inflation being temporary and they have to put the brakes on sooner than expected."
"This takes away from immediate dollar upside but the ultimate dollar upside story still focuses on interest rates."
HINESH PATEL, PORTFOLIO MANAGER AT QUILTER INVESTORS, LONDON, IN EMAILED COMMENTS
"Powell's speech is evidence that central banks are looking beyond the surge in Delta cases globally."
"Powell has been incredibly clear that tapering is coming later this year and they should now be prepared enough to avoid any sort of tantrum. But central banks will have to ultimately hold the hands of financial markets as we transition to a new era of monetary policy to ensure credit conditions remain optimal."
SIMON HARVEY, SENIOR FX MARKET ANALYST, MONEX EUROPE
"In the FX space, the dollar's downturn occurred around 5 minutes before Powell's speech was released, with the greenback's losses extending once headlines came in and front-end yields plummeted. More accommodative Fed policy looks to be on the horizon as long as Covid continues to linger over the US economic recovery, and the classic adage of "bad news is good news" rings out for markets amid this environment."
KARL SCHAMOTTA, DIRECTOR OF GLOBAL PRODUCT AND MARKET STRATEGY, CAMBRIDGE GLOBAL PAYMENTS, TORONTO
"With one hand Powell giveth, and with the other, taketh away. The Fed Chair's comments suggest the central bank could begin tapering asset purchases this year, but interest rate hikes remain a distant and uncertain prospect."
"The dollar is tumbling as market participants sharply lower expectations for the Fed's long-term tightening trajectory. By suggesting a "different and substantially more stringent test" must be met before rates rise, and that disinflationary pressures will resume once the "pandemic passes into history", Powell is dropping a hammer on the middle of the interest rate curve and compelling traders to search for yield in foreign markets."
GENNADIY GOLDBERG, INTEREST RATE STRATEGIST, TD SECURITIES, NEW YORK
"I think the message is clear for Treasuries -- it's status quo and watch the data. Really, the data over the next month or two will determine the actions the Fed takes. So if we get a very strong payrolls report for example next month it could suggest that tapering could happen sooner. If the data starts to moderate, and not just the payrolls -- on inflation, on activity -- we could actually see the Fed move a little bit later. It's more of a question of when not if. We know tapering is coming, it's just a question of when that tapering will become appropriate."
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES, NEW YORK
"Very anticipated commentary today… not going to announce the exact cadence or timing but we're certainly going to hear that we've made substantial progress and that this year is when we kick (taper) off. Markets are getting exactly what they anticipated and therefore trying to claw back from yesterday's losses. This has been a very transparent Fed and we've heard a lot about the potential for tapering of asset purchases and today is pretty much as we expected."
"Powell has done a very good job of not surprising us. We've been talking about (tapering) for a bit. Most Fed speakers have made it a part of their conversation and that's taking out the surprise out of the tantrum. It removes the potential for a tantrum. It is a very well telegraphed move and that sort of alleviates any pressure of surprising markets."
"(Tapering) will probably (be announced) in the September meeting and they'll probably kick it off in November and it will likely be wrapped up in the first half of next year."
"They are likely to raise interest rates in the back half of 2022. It'll certainly be as very well telegraphed as the taper has been. They'll start talking about interest rate changes in the mid-year, when they would have wrapped up tapering at that juncture."
MICHAEL BROWN, SENIOR ANALYST, CAXTON, LONDON
"I think it was a little bit of a damp squib to be honest, especially given that the market had been so eagerly anticipating Jackson Hole for months. The remarks were, broadly, a repeat of the July FOMC minutes, though with the language around tapering still heavily caveated."
"Powell has, simply, punted to September, at which point we may get more of a firm signal on how tapering will pan out, though the lack of any firm nod to tapering today means a September taper announcement is highly unlikely."
"The (FX) market has interpreted Powell's remarks as a little more dovish than expected, though I think there is plenty 'selling the fact' going on, after a week of building up hawkish positions."
KIM FORREST, CHIEF INVESTMENT OFFICER, BOKEH CAPITAL PARTNERS, PITTSBURGH
"Powell understands that tapering will happen, but it's not going to happen sooner than later. He's going to make sure that full employment comes back before taking those steps."
"Even though a lot of the other Fed presidents have come out and said 'we're going to do this sooner rather than later, prudent Powell is going to make sure that the economy really is healed. You don't want to make people carsick when you're driving an economy."
JOHN DOYLE, VICE PRESIDENT OF DEALING AND TRADING, TEMPUS INC., WASHINGTON
"It appears the speech was a bit more dovish than some had expected."
"Powell said that tapering could be appropriate "this year." Except we already knew that. Minutes from the last Fed meeting showed that "most" participants favored tapering this year. Powell did not indicate tapering would being next month as some expected, hence the "dovish" label."
"If easing stays in place longer, that is good for stocks and bad for the dollar so the market moves all make sense so far." (Reporting by Reuters markets team)
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