Fed to accelerate tapering of bond purchases, end that stimulus by March
By Marc Arcas
Washington, Dec 15 (EFE).- The US Federal Reserve confirmed Wednesday that it will accelerate its wind-down of a stimulus program launched in response to the Covid-19 crisis.
That announcement signals that the central bank plans to completely eliminate its purchases of Treasury securities and government-guaranteed mortgage-backed securities by March 2022.
“We are phasing out our purchases more rapidly, because with elevated pressures and a rapidly strengthening labor market, the economy no longer needs increasing amounts of policy support,” Fed Chairman Jerome Powell said at a news conference Wednesday after the latest two-day meeting of the Federal Open Market Committee (FOMC), the central bank’s monetary policy-making body.
“Beginning in mid-January, we will reduce the monthly pace of our net-asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities,” he added.
“If the economy evolves broadly, as expected, similar reductions in the pace of net-asset purchases will likely be appropriate each month, implying that increases in our securities holdings would cease by mid-March, a few months sooner than we anticipated in early November.”
The Fed for now has left interest rates unchanged at a target range of between zero and 0.25 percent even though the annual inflation rate came in at 6.8 percent in November, the highest level in nearly 40 years.
But several central bank officials indicated in their individual post-meeting projections that they expect at least three rate hikes next year, as well as two more in 2023 and another two in 2024.
Separately, the Fed lowered its US growth projection for this year to 5.5 percent, down four-tenths of a percentage point from September and raised its outlook for year-end inflation to 5.3 percent, up from 4.2 percent.
Even so, the central bank expects inflation to fall sharply to 2.6 percent in 2022, although that projection is up from a 2.2 percent forecast in September.
In his post-meeting press conference, Powell acknowledged that, “while the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic, price increases have now spread to a broader range of goods and services.”
Notably absent from the latest FOMC statement was language indicating that the factors driving inflation are expected to be “transitory.”
But Justin Wolfers, an economics professor at the University of Michigan, said the Fed’s projections show it is still optimistic that consumer prices will quickly be brought under control.
“While the Fed has officially retired the term ‘transitory,’ its forecasts sure still look like it expects the current inflation surge to be transitory. This year’s PCE (personal consumption expenditures) inflation is expected to be 5.3 percent, falling to 2.6 percent in 2022, 2.3 percent in 2023, and 2.1 percent in 2024,” he wrote on Twitter. EFE