WASHINGTON, Aug 27, 2021 (AFP) - With the US economy recovered from the
worst of the pandemic crisis, there is much anticipation in global financial
markets around Federal Reserve Chair Jerome Powell's speech on Friday to see
if he will detail plans to roll back the central bank's massive stimulus
measures.

  But concerns about the impact of the fast-spreading Delta variant of the
coronavirus on the economy could make expectations of an announcement at the
annual Jackson Hole central banking symposium premature.

  "Powell's speech is not likely to provide any breaking insights," said
veteran Fed-watcher Mickey Levy of Berenberg Capital Markets.

  When Covid-19 transformed the world's largest economy last year, the Fed
jumped into action to prevent a major recession, slashing interest rates to
zero in March 2020 and buying huge amounts of Treasury debt and agency
mortgage-backed securities to provide liquidity to the financial system.

  Those programs likely saved the United States from a worse downturn, but
were never meant to be permanent.

  The Fed has said it will slow the pace of its massive bond buying program
then raise the benchmark lending rate -- though no action on the latter is
anticipated anytime soon, potentially for years, while the former is viewed
as a delicate task.

  "It is most likely that Powell's speech will stick to the Fed's recent
script of tip-toeing toward tapering and disassociating the unwinding of its
asset purchases from the eventual liftoff of rates," Levy said in an
analysis.

  - More jobs, higher inflation -

  Widespread vaccinations have allowed businesses across the United States to
reopen fully, which has restored millions of jobs and brought the
unemployment rate down to 5.4 percent last month, much closer to the pre-
pandemic level of 3.5 percent.

  But labor shortages and shipping issues have combined to create supply
bottlenecks and fuel a spike in inflation to about four percent, though Fed
officials see that eventually subsiding.

  Central bank leaders in recent days have said they favor starting to pull
back on their current $120 billion a month in bond purchases, though some
added a caveat that the Delta variant could cause a delay.

  Kansas City Fed Bank President Esther George, host of the Jackson Hole
conference and considered an inflation hawk, said Thursday that the strong
data suggest "there's an opportunity to begin to dial back on asset
purchases."

  But in an interview on Fox Business Network, she hinted that the details
may have to wait for "the communication... coming out of our September
meeting."

  Organizers intended to return the conference to its usual in-person format,
but due to rising Covid-19 infections announced this week it would be held
virtually for the second year in a row.

  - Taper tantrum -

  Powell's biggest concern is executing tapering without a repeat of the
freak-out seen the last time the central bank tried the maneuver following a
crisis.

  The Fed first resorted to bond buying -- known as quantitative easing (QE)
-- after the financial system froze up in the 2008 global economic downturn.

  But when then-Fed chief Ben Bernanke in 2013 merely suggested the time was
approaching to start to slow QE, markets rebelled, forcing a delay in the
central bank's normalization efforts.

  Powell has repeatedly promised to give markets plenty of advanced notice
before relaxing purchases, but doing so will not be easy.

  "He is walking a knife's edge," economist Diane Swonk of Grant Thornton
told AFP.

  "The best way to prevent a taper tantrum is to lay out a road map for
tapering, with off ramps if variants do more to disrupt demand than supply
chains," she said.

  But "he can't ignore those risks and barrel ahead with tapering."