Federal Reserve Chairman Jerome Powell is preparing markets to announce a slowdown in monthly asset purchases, suggesting that the US economic recovery looks strong enough to withstand the Fed’s declining stimulus as early as next month.
Powell said the Fed is “on track” to start slowing its purchases of securities, which currently amount to about $ 120 billion a month.
He confirmed that if economic conditions develop as expected, the Fed could complete the QE program by the middle of next year.
The chairman of the central bank said that the “reduction” in asset purchases is unlikely to disrupt the recovery of the labor market, where 5 million people are unemployed, compared to pre-pandemic levels.
Starting the decline in purchases will allow the Fed to move on the path to raising interest rates. From the depths of the pandemic, the Federal Open Market Committee has fixed interest rates on short-term loans to almost zero. Raising interest rates could be critical if inflationary pressures remain far from the central bank’s 2% target.
“No one should doubt that we will use these tools to reduce inflation back to 2% over time,” Powell said. “At the same time, we believe that we can be patient and allow the recovery to be completed and allow the labor market to heal.”
Powell said inflation is currently above target, but expects problems with the global supply chain, which increase costs, to weaken over time. The Fed chairman, meanwhile, said monetary policy instruments “don’t do much about supply problems.”
Fed Governors Randall Quarles and Christopher Waller said this week that they would support reducing the upcoming meeting.
Powell said markets do not appear unprepared to shrink. An example of unprepared markets could be the decline in purchases in 2013, when then-Fed Chairman Ben Bernanke inadvertently caused market volatility.
“I think the market as a whole understands where we are,” Powell said
Junior Trader Nikolay Stoychev