In a move that some analysts say signals a post-pandemic perspective, the Federal Reserve has announced that it will soon cut back on its monthly bond purchases.
That action could, in turn, usher in a period of increased interest rates.
The move, announced after a meeting of the Fed’s Federal Open Market Committee, is seen as a calculated response to inflation, which the Fed says is currently running around 4.2%, far above the 2% it prefers.
In a statement, the committee declared that “if progress continues broadly as expected,” a moderation in the “pace of asset purchase may soon be warranted.”
“These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the statement added.
In a news conference, Fed Chair Jerome Powell said a decrease in what has been the bank’s $120 billion in bond purchases per month will likely begin during the first week of November.
The timing is anything but accidental: The Fed’s larger goal is to greatly decrease its bond purchases before it increases overall borrowing costs, which will most likely occur in 2022.
Either way, some degree of inflation will remain intact, says the Fed, predicting a 2.2% rate next year, very slightly decreasing to 2.1% in 2024.
Overall, the Fed is feeling marginally bullish about current conditions. In a policy statement, the agency remarked that the “sectors most adversely affected by the pandemic have improved in recent months, but the rise in Covid 19 cases has slowed their recovery.”
By Garry Boulard
