Fed: On track to slow support for economy later in the year
Federal Reserve Chair Jerome Powell signaled Wednesday that the Fed plans to announce as early as November that it will start withdrawing the extraordinary support it unleashed after the coronavirus paralyzed the economy 18 months ago.
Powell said that if the job market maintained its steady improvement, the Fed would likely begin slowing the pace of its monthly bond purchases. Those purchases have been intended to lower longer-term loan rates to encourage borrowing and spending.
“I think if the economy continues to progress broadly in line with expectations,” the Fed chair said at a news conference, “I think we can easily move ahead at the next meeting” in November.
At the same time, the Fed’s policymaking committee indicated that it expects to start raising its benchmark rate sometime next year — earlier than the members had envisioned three months ago and a sign that they’re concerned that high inflation pressures may persist. Powell stressed, though, that a rate hike would occur only after the Fed had ended its bond purchases, a process he said would likely last through the middle of next year.
Taken together, the Fed’s plans reflect its belief that the economy has recovered sufficiently from the pandemic recession for it to soon begin dialing back the emergency aid it provided after the virus erupted. As the economy has strengthened, inflation has also accelerated to a three-decade high, heightening the pressure on the Fed to pull back.
The central bank’s pullback in bond purchases and its eventual rate hikes, whenever they happen, will mean that some borrowers will have to pay more for mortgages, credit cards and business loans.
Stock and bond traders took the Fed’s message Wednesday in stride. The Dow Jones Industrial Average, which had been up more than 400 points before the Fed issued a policy statement, closed up 338 points, or a full 1%. The yield on the 10-year Treasury note was all but unchanged at roughly 1.31%.