If the American economy continues to develop positively, the Federal Reserve could begin to slowly reduce its monthly bond purchase program.

In his much-anticipated keynote address for the Jackson Hole Symposium, Fed Chairman Jerome Powell said it might be appropriate to reduce quantitative easing if the economy makes substantial progress towards the Fed's two monetary policy goals: maximum employment and price stability .

Winand von Petersdorff-Campen

Business correspondent in Washington.

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Powell said that the desired progress has been achieved on the price front, but not yet on the labor market.

Employment is growing rapidly, but at the same time the spread of the delta variant of the coronavirus means new risks.

The current unemployment rate of 5.4 percent obscures the view of true underemployment: There are still six million fewer Americans in wages than at the beginning of the pandemic crisis in February 2020. Powell also attaches importance to the fact that a possible reduction in the quantitative Easing program is independent of the key interest rate, which he wants to keep close to zero until maximum employment and price stability are guaranteed with inflation of 2 percent.   

Temporary phenomenon?

Powell cited current inflation as a cause for concern. Significantly rising inflation rates and criticism of the Fed's policy of quantitative easing with high bond purchases had drawn the attention of stock market players, politicians and economists. The Fed's preferred price index PCE for measuring inflation was 4.2 percent higher in July than a year ago; in the two previous months the rate of increase had been 4 percent. If you factor out the increases in food and energy prices, prices rose by 3.6 percent in July.

The alternative inflation indicator CPI rose to 5.4 percent in July, while the Federal Reserve's monetary policy target is 2 percent inflation. So far, central bankers have been largely unanimous in arguing that they regard the price hikes as a temporary phenomenon that does not require a change in key interest rates. Powell repeated this assessment. He attributed price increases primarily to developments in selected product groups. 

However, some are more open to the demand to reduce monthly bond purchases. The Federal Reserve is increasing its bond portfolio month after month with government bonds worth $ 80 billion and mortgage bonds worth $ 120 billion with the aim of keeping medium and long-term interest rates low and stabilizing assets. Prominent critics such as the former Treasury Secretary and Harvard economist Larry Summers are calling on the Fed to reduce the program because, in view of an unemployment rate of 5.4 percent, huge labor shortages and inflation, it is no longer necessary and it also makes assets that are above all more expensive Belonged to Americans.

The impact of monetary policy on inequality is one of the central questions of this year's symposium, which is entitled “Macroeconomic Politics in an Uneven Economy”.

Well-known economists such as Maurice Obstfeld, Gita Gopinath and Alan Blinder will present new studies at the event.


The Jackson Hole Symposium will take place virtually this year and will be limited to one day.

Hostess Esther George, head of the regional Federal Reserve of Kansas, had canceled a classroom event after coronavirus case numbers in the county with the Jackson Hole ski resort in Wyoming threatened to increase the risk of infection for guests.