US Federal Reserve to start winding down bond-buying program
By Alfonso Fernandez
Washington, Nov 3 (EFE).- The United States Federal Reserve said Wednesday that it will start rolling back the extraordinary monetary stimulus program it launched in response to the pandemic-triggered economic crisis.
That program currently involves purchases of $120 billion per month in mortgage-backed and Treasury securities to keep long-term interest rates low, but the central bank said they will be reduced by $15 billion a month starting in November and by an additional $15 billion in December.
At that rate, the program would be brought to an end by mid-2022.
The bond-buying announcement was made after the latest two-day meeting of the Fed’s monetary policy-making body, the Federal Open Market Committee, which on Wednesday left its benchmark interest rate unchanged at a target range of between 0 percent and 0.25 percent.
The FOMC said substantial further economic progress observed this year justifies the decision to scale back the bond-buying program, also known as quantitative easing.
It noted, however, that the central bank is prepared to slow down or accelerate the pace of its asset purchase reductions starting next year “if warranted by changes in the economic outlook.”
Fed Chairman Jerome Powell, for his part, said at a press conference Wednesday that the central bank is not considering raising the benchmark federal-funds rate from its current target range.
“We think we can be patient. If a response is called for, we will not hesitate,” the chairman said, noting that more progress will need to be seen in a US labor market in which persistent, Covid-19 related problems remain.
The US unemployment rate fell to 4.8 percent in September, its lowest level since the start of the pandemic-triggered crisis, but job creation has been much slower than government officials were anticipating.
The Fed is holding back on raising rates even though the annual inflation rate came in at 5.4 percent in September, matching a 13-year high.
In that respect, the FOMC acknowledged in Wednesday’s statement that the US inflation rate is “elevated” but it says the price hikes largely reflect “factors that are expected to be transitory.”
“Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors,” that policy-making body said.
Powell, meanwhile, said in his press conference that the inflation rate should remain high “well into next year” but then start to move lower in the second or third quarter of 2022.
He echoed remarks made a week ago by Treasury Secretary Janet Yellen, who acknowledged that prices will remain high until mid-2022 but said she does not believe the inflation rate will get out of control.
In September, the Fed lowered its forecast for US growth this year to 5.9 percent, down from 7 percent in June.
It also raised its year-end inflation forecast from 3.4 percent to 4.2 percent. EFE