The U.S. Federal Reserve kept interest rates at near zero but signaled it is ready to start winding down its emergency economic stimulus program.
The central bank’s monthly purchases of government-backed securities have helped to support the economy since the depths of the COVID-19 crisis. But after a two-day policy meeting, its rate-setting committee indicated Wednesday it could start to reduce, or taper, the purchases as soon as November.
The economy has “made progress” toward the goals of maximum employment and price stability that the Fed set in December 2020, the committee said in a news release. “If progress continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted.”
The Fed has been purchasing at least $80 billion a month in Treasuries and $40 billion a month in mortgage bonds since June 2020. The purchases “still have a use, but it’s time for us to begin to taper them,” Fed Chair Jerome Powell told reporters.
As The New York Times reports, “the Fed is trying to guide an economy in which business has rebounded as consumers spend strongly, helped along by repeated government stimulus checks and other benefits.”
With inflation high and the labor market still far from full strength, Fed officials “are weighing when and how to reduce their monetary policy support, hoping to prevent economic or financial market overheating while keeping the recovery on track,” the Times said.
The policy-making committee said it had decided to keep interest rates at near zero until inflation is “on track to moderately exceed 2 percent for some time.” The Fed’s preferred inflation gauge rose 3.6% in July from a year earlier.
At the committee meeting, nine Fed policymakers penciled in one or more rate increases next year, up from seven when projections were last released in June.
“You saw a very consistent view across the committee that, ‘We really need to manage inflation risk, and therefore we may need to hike sooner than expected,’” said Tiffany Wilding, an economist at Pacific Investment Management.