The move will see the central bank gradually phase out its emergency economic support
The Federal Reserve has announced that it will begin reducing the monthly pace of pandemic-era bond purchases later this month, citing strengthening economic activity and employment while also leaving interest rates untouched for now.
In its Federal Open Market Committee (FOMC) statement, the central bank said it would reduce the monthly pace of net-asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities, with the target range for the federal funds rate remaining steady at zero to 0.25%.
The Fed said it had decided to leave that range unchanged until labor market conditions had improved and inflation was on track to “moderately exceed” its target of 2% for some time.
The beginning of the bonds taper was widely anticipated, with the central bank striking an optimistic tone on the economy despite lingering issues caused by COVID-19.
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“With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen,” it said. “The sectors most adversely affected by the pandemic have improved in recent months, but the summer’s rise in COVID-19 cases has slowed their recovery.”
While inflation remains elevated, the Fed said that reflected factors that were “expected to be transitory,” with supply-demand imbalances caused by the pandemic and the economy’s reopening contributing to significant price increases in some areas.
“Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to US households and businesses,” the Fed added.
Still, the Committee emphasized that it would continue keeping a close eye on “the implications of incoming information” for the economic outlook, and that it would be prepared to adjust its stance if risks emerge in the future.
Factors that it will monitor, it said, include “readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”