The Federal Reserve could “soon” reduce its asset purchases

Posted on Sep 22, 2021 at 8:49 PMUpdated on Sep 22, 2021, 10:06 PM

The Federal Reserve could begin to put away its monetary policy tools used to serve the economy during the Covid crisis. The central bank decided on Wednesday to keep interest rates unchanged (0 to 0.25%), but “if progress continues overall as planned, the Committee believes that a moderation in the pace of asset purchases could soon be justified, ”the central bank said on Wednesday at the end of its monetary policy committee.

The gradual improvement in the economy could also prompt the Fed to raise interest rates as early as next year. The median of its directors’ forecasts thus forecast interest rates at 0.3% at the end of 2022 then at 1% a year later. Last June, a majority of them bet on a status quo throughout the next year.


To maintain long-term inflation around 2% and ensure full employment, its two mandates, the Fed has been buying on the market every month, since the start of the Covid crisis, for around $ 120 billion in treasury bills. and mortgage bonds. A tool that promotes “the proper functioning of markets and accommodating financial conditions” for households and businesses but which is now less useful, judged Jerome Powell Wednesday.

For the president of the Fed, the start of the “tapering” could begin as early as November, the date of the next meeting of the Monetary Policy Committee (FOMC), and end in mid-2022, he said, while recalling that neither the decision nor the rate of reduction had been decided at this stage.

Subtle calibration

With inflation which is moderating (+ 0.3% in August) but remains high (+ 5.3% over one year), an unemployment rate which continues to fall (to 5.2% of the working population) but job creations which are slowing down (235,000 in August against more than a million in July), “the evolution of the economy continues to depend on the evolution of the virus”, points out the press release from the Fed. “Progress in vaccination will probably continue to reduce the effects of the public health crisis on the economy, but risks still weigh on the economic outlook,” said the Federal Reserve.

With a jump in Covid contamination this summer due to the Delta variant, and a population vaccination rate that is struggling to climb (54.8%, nine points less than within the European Union), the Reserve Federal government revised its growth forecasts in the United States. The median growth forecast for this year thus stands at 5.9% for this year, against 7% in its June forecasts. Activity should then grow by 3.8% next year, more than the 3.3% expected three months ago.

Formal announcement

At the end of August, at the Jackson Hole symposium, Jerome Powell confirmed his openness to start reducing asset purchases (“tapering”) by the central bank, while linking its action to the development of activity and Fed targets. Before the September meeting, economists were already counting on a formal announcement in November, for implementation from December.

Jerome Powell also shyly commented on the revelations on the financial operations of two regional directors of the Fed, Robert Kaplan (Dallas) and Eric Rosengren (Boston), on their own behalf in 2020. “We need to do better and we will do it. do, ”he promised. He also deemed “very important” to raise the debt ceiling, a file on which Democrats and Republicans are straining in Congress. “No one should assume that the Fed or anyone else can fully protect the markets or the economy in the event of a default,” he warned.

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