US Fed communication will be key to economic prospects

Significance

While Chair Jerome Powell cautions that full employment remains some way off, the Fed is considering how and when to wind down its asset purchases. It could give more guidance at the Jackson Hole meeting this month.

Impacts

• The Fed balance sheet has doubled as a share of GDP in 2020/21 and will remain large, possibly only shrinking slowly as the economy grows.
• Facing criticism of driving inequality, the Fed is unlikely to remove stimulus until gauges such as Black unemployment fall to low levels.
• Powell’s term as chair ends in February; Joe Biden and Janet Yellen will assess by end-2021 whether he should serve a second term.