The Federal Reserve Board on Wednesday declared its decision to continue the zero interest rate policy and keep the government-backed bond purchases unchanged at the latest Federal Open Market Committee (FOMC). The committee hinted that policymakers might soon start tapering its asset purchases.
The committee will continue to purchase bonds and mortgage-backed securities worth $120 billion monthly until significant progress is made in inflation and employment. They explained that while there is progress in its goals towards full employment and 2 percent average inflation, it is not enough to require policy changes as of yet.
In financial markets like cryptocurrencies, the central bank might start reducing quantitative easing. However, Federal Reserve Chair Jerome Powell said that he will hold several meetings to see the economic situation. He said:
“We have not reached substantial further progress yet, so we’re not there. We see ourselves as having some ground to cover to get there.”
“We expect further progress, and we expect that if things go well then we will reach that goal. And when we reach it, and the committee is comfortable that we have reached it, then we’ll taper at that point.”
The possibility of tapering was first discussed during the last FOMC held in June. However, inflation has been much higher than expected since June and the spread of the Delta variant across the US has revived concerns surrounding growth.
Powell explained that there might be downsides related to inflation but that price pressures would eventually relax. Regarding the spread of the Delta variant, he said that it is less likely that Americans will change their behavior as they did in the previous outbreaks, hence might not contribute to a large economic impact.
According to the Financial Times report, Powell said that it was the FED’s first deep discussion on critical issues related to the ‘timing, pace and composition of the eventual tapering move’. He explained that there are different views on the appropriate time and those views will ultimately depend on the people’s views about the economy and what will be the circumstances as the economy makes progress towards those goals.
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