Fed may start reducing bond purchases this year
WASHINGTON: US Federal Reserve chair Jerome Powell said the central bank could begin reducing its monthly bond purchases this year, though it won’t be in a hurry to begin raising interest rates thereafter.
The US economy has now met the test of “substantial further progress” toward the Fed’s inflation objective that Powell and his colleagues said would be a precondition for tapering the bond purchases, while the labour market has also made “clear progress,” the Fed chief said Friday in the prepared text of a virtual speech at the Kansas City Fed’s annual Jackson Hole symposium.
At the Fed’s most recent policy meeting in late July, “I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year,” Powell said.
“The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the delta variant,” he said. “We will be carefully assessing incoming data and the
evolving risks.”
At the July Federal Open Market Committee meeting, most Fed officials agreed it would probably be appropriate to begin tapering the central bank’s $120-billion-a-month bond-buying program before the end of the year, according to a record of the gathering. Some are pushing for a move as soon as next month.
The S&P 500 rose during the much-anticipated address to stand over 0.6% higher from opening levels. Ten-year Treasury yields nudged slightly lower to around 1.33%.
Monetary policy makers would like to conclude the purchases before officials begin raising interest rates, and several in June saw a possible need for rate increases as early as 2022 amid inflation that is running above the central bank’s 2% target. The Fed cut its benchmark rate to nearly zero and relaunched the crisis-era purchase program last year at the onset of the pandemic. Powell cautioned that a move to begin winding down the bond-buying program should not be interpreted as a sign that rate hikes would soon follow.