Federal Reserve chair Jerome Powell announced Wednesday afternoon the Fed will begin to taper down its pandemic-era aid as soon as later this month. The move has been expected, with Powell hinting at the November timeline back in September.
“I think if the economy continues to progress broadly in line with expectations,” Powell said after September’s Fed policymaking committee meeting. “I think we can easily move ahead at the next meeting”.
The Fed plans to taper down pandemic-era aid in the form of $120 billion in monthly bond purchases. According to a statement released Wednesday afternoon, the Fed said it will taper down by $15 billion a month. The Fed has reserved the right to change that pace of the taper, and may accelerate it if inflation gets worse. If they keep at the $15 billion a month pace, they will be fully done with bond purchases by the second half of 2022.
Wednesday’s decision comes as high inflation has continued to persist for much longer than Powell and many other economic officials initially expected. On Friday, the government said prices surged 4.4% in September from a year earlier. That’s the fastest 12-month increase in 30 years.
If inflation continues to be a problem by the time the Fed is done with its pandemic-era aid taper, inflation could play a factor when the Fed decides when to raise its benchmark short-term rate from zero. That’s where the rate has been since the pandemic began.
A rate increase would be intended to make sure inflation doesn’t get out of control. However, there is also a risk of discouraging spending and undercutting the job market and the economy before they’ve regained full health. Powell has said that he would like the job market to show further improvement before the Fed begins to raise its key short-term rate.
“I do think it’s time to taper, and I don’t think it’s time to raise rates,” Powell said last week. At its last meeting, about half the Fed’s policymakers forecast that the first rate hike would be in late 2022, with the other half projecting 2023 or later.
