In response to rising inflation, the US Federal Reserve said in January that it will begin a speedier tapering of its asset purchase programme. The Federal Open Market Committee (FOMC), the bank’s policy-making committee, said in a statement on Wednesday after a two-day policy meeting that “supply and demand imbalances associated to the epidemic and the reopening of the economy have continued to contribute to elevated levels of inflation.”
The committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities, beginning with the mid-January purchase schedule, in light of inflation developments and further improvement in the labour market, according to the Xinhua news agency.
The statement noted that “the Committee considers that such monthly declines in the rate of net asset purchases will be reasonable,” and that “it is prepared to adjust the pace of purchases if required by changes in the economic outlook.”
The Fed agreed early last month to decrease its $120 billion monthly asset buying programme by $15 billion. The central bank’s announcement on Wednesday put it on track to complete asset purchases by March, rather than June, as had been predicted.
“We’re phasing out our purchases more quickly because the economy no longer requires rising levels of policy assistance with elevated inflation pressures and a rapidly tightening labour market,” Fed Chairman Jerome Powell said in a virtual press conference on Wednesday afternoon.
According to the Labour Department, the consumer price index (CPI) increased 6.8% year over year in November, the fastest annual rate in over 40 years.
As per Fed employees’ median interest rate estimates announced on Wednesday, the central bank could raise the benchmark interest rate three times next year, up from one hike predicted in September. Fed policymakers also predicted that the US economy will grow at a rate of 5.5 percent in 2021, down from 5.9 percent in September.
Since the beginning of the pandemic, the Federal Reserve has vowed to keep the federal funds rate near zero, which is a record low.