New York (CNN Business)Federal Reserve Chairman Jerome Powell said Friday that the economic recovery is continuing apace, high inflation is just temporary, and the Fed will soon wind down the emergency economic stimulus program.
But, in his highly anticipated speech at the virtual Jackson Hole Symposium, Powell tempered his optimism with some words of caution: The Delta variant remains a looming threat to the US economy.
The speech didn't provide an exact timeframe for the Fed's stimulus rollback of its monthly asset purchases, known to Wall Street investors as "tapering."
Balancing the threat of Covid with the ongoing economic recovery, Powell suggested the Fed, which has been buying $120 billion worth of Treasury and mortgage-backed securities every month since the height of the pandemic to support the economy, will start pumping the brakes on those buys before the end of the year.
That was in line with last week's July meeting minutes, which had caused a brief stir in the market.
The right conditions to taper
At Jackson Hole, Powell pointed at the progress the economy has made since last year's recession.
The Fed, which is tasked with holding prices stable and achieving maximum employment, was looking for more progress on both those fronts in the past months before changing its policy.
But on Friday, Powell said that the test for inflation has now been met and that "has also been clear progress toward maximum employment."
"The pace of total hiring is faster than at any time in the recorded data before the pandemic," Powell said. "These favorable conditions for job seekers should help the economy cover the considerable remaining ground to reach maximum employment."
Between June and July, the US economy added nearly 1.9 million jobs. And next week's August jobs report is also expected to be strong.
Earlier Friday, the Fed's preferred measure of inflation -- the PCE price index -- hit a 30-year high, well above the bank's target around 2%. Powell has long said that the inflation spike will only be temporary and dissipate as pandemic conditions ease. He reiterated this in his speech.
But even so this doesn't mean the money taps will be turned off right away.
"For now, I believe that policy is well positioned," Powell said. He also stressed that a reduction to the monthly shopping spree wouldn't be a direct signal to raise interest rates.
The minutes from the Fed's July meeting showed most central bank officials believed that the monthly asset purchases could be rolled back later this year if the economy keeps going at its current pace.
If tapering were imminent, "then surely Powell would have dropped a heavier hint today rather than just repeating what was in the July minutes," said Paul Ashworth, chief US economist at Capital Economics.
Plus, the recovery has its own problems: "The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant," Powell said.
Rising Covid-19 cases on the back of the more infectious Delta variant have been weighing on some economic indicators recently.
As Powell spoke Friday morning, the final August reading of the University of Michigan's consumer sentiment index showed "no lessening ... in the extent of the collapse in consumer sentiment recorded in the first half of the month."
The indicator had fallen to a its worst level since December 2011 in a preliminary release earlier this month.
No taper tantrum
Financial markets shrugged off Powell's foreshadowing of a tapering.
Wall Street was in the green, with all three major stock indexes adding to modest gains following Powell's address.
The yield on the 10-year Treasury bond edged lower, down 0.02% at 1.32%.
Investors remain somewhat on edge about the eventual tapering announcement: The last time the Fed rolled back its monthly purchases in 2013, the market fell into a so-called "taper tantrum", characterized by a steep rise in bond yields in just a matter of months.
Prior to the Jackson Hole speech, investors broadly agreed that the Fed wouldn't officially announce a reduction of its monthly buys until the fall or winter meetings.