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US Federal Reserve signals tapering could start soon

The US economy is expected to expand at 5.9 per cent this year, lower than 7 per cent estimated in June, according to the median forecast of the Fed's latest summary of economic projections released also on Wednesday.

IANS Edited by: IANS New Delhi Published on: September 23, 2021 11:24 IST
federal reserve policy
Image Source : AP

Federal Reserve Board Chair Jerome Powell 

The US Federal Reserve has kept its benchmark interest rate unchanged at the record-low level of near zero, while signaling that the central bank may begin tapering asset purchases soon despite the ongoing economic uncertainty.

The Fed on Wednesday pledged to continue its asset purchase program at least at the current pace of $120 billion per month until "substantial further progress" has been made on employment and inflation since last December, reports Xinhua news agency.

"Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted," the Federal Open Market Committee (FOMC), the Fed's policy-making committee, said in a statement after a two-day meeting.

"The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals," the statement said.

At a virtual press conference on Wednesday afternoon, Fed Chair Jerome Powell said that the sectors most adversely affected by the pandemic improved in recent months, but the rise in Covid-19 cases slowed recovery.

"The Delta variant led to significant increases in Covid-19 cases resulting in significant hardship and loss and slowing the economic recovery. Continued progress on vaccinations would help contain the virus and support a return to more normal economic conditions," he said.

Powell also said that Fed officials downgraded their forecasts for the country's economic growth this year compared with three months ago, "partly reflecting the effect of the virus".

The US economy is expected to expand at 5.9 per cent this year, lower than 7 per cent estimated in June, according to the median forecast of the Fed's latest summary of economic projections released also on Wednesday.

The median estimate of inflation at the end of this year, measured by annual growth in the personal consumption expenditures (PCE) index, rose to 4.2 per cent from 3.4 per cent in June, well above the central bank's target of 2 per cent.

"For inflation, we appear to have achieved more than significant progress, substantial further progress," Powell said, adding the substantial further progress test for employment is "all but met".

"Once we met those two tests, that could come as soon as the next meeting, the Committee will consider that test and look at the broader environment at that time and make a decision whether to taper," he said.

"While no decisions made, participants generally view that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate."

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