The Federal Reserve announced that it will begin its monthly bond purchases at a pace of $ 15 billion per month later this month, while expressing less confidence that the spike in inflation will prove temporary.
The Fed announced it would cut government bond purchases by $ 10 billion and mortgage-backed securities by $ 5 billion, marking the beginning of the end of the program designed to protect the economy from Covid-19. The FOMC decided to keep the target range for its key rate at zero to 0.25%. The decision was unanimous.
The Marriner S. Eccles Federal Reserve building in Washington, D.C. Photographer: Stefani Reynolds / Bloomberg
Stefani Reynolds / Bloomberg
After the cuts in November and December, "the Committee believes that similar reductions in the pace of net asset purchases are likely to be appropriate each month, but stands ready to adjust the pace of purchases if warranted by changes in the economic outlook" The US announced the monetary policy open market committee of the central bank on Wednesday after a two-day meeting.
The path outlined would complete the taper process by June. Ten-year government bond yields rose while the dollar and the S&P 500 barely changed.
Fed leans on the supply chain as the crux of inflation
Central banks in developed countries around the world are paying attention to the risk of inflation as blockages in the supply chain lead to bottlenecks in the face of strong demand. The Fed's preferred inflation measure for the twelve months to September was 4.4%, the highest in three decades and more than double the central bank's target. Consumer price expectations rose to 4.2% in the same month, the highest level since 2013.
"Inflation has increased, largely reflecting factors that are expected to be temporary," officials said in the statement. "Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to significant price increases in some sectors."
Investors generally expected the announcement of security purchases at the meeting as Fed officials, including Chairman Jerome Powell, signaled the move. Powell will hold a press conference at 2:30 p.m. in Washington. Powell's term expires in February, and President Joe Biden said Tuesday he would announce his election for the chair and other posts "fairly quickly".
The pace of rejuvenation paves the way for a possible rate hike in the second half of 2022, with nine out of 18 officials forecasting a move next year in their September outlook. Wednesday's statement reiterated that interest rates will be kept near zero until the economy hits maximum employment.
Several labor market metrics remain weaker than pre-pandemic levels, and policymakers are likely to intensify their debate on whether the pre-Covid-19 strike is the best benchmark for a job that has grown tremendously over the past two years has changed.