US Federal Reserve announces imminent throttling of asset purchases

Washington (dpa) – One and a half years after the start of the pandemic, the US Federal Reserve is preparing to scale back its corona stimulus measures.

At the next meeting in early November, a throttling could occur the billion dollar security purchases will be decided, said Fed Chairman Jerome Powell on Wednesday. Purchases could be discontinued until the middle 2022. At the same time, new forecasts point to an interest rate hike in the coming year.

The Federal Reserve is currently sticking to its very loose monetary policy. The key rate remains in the low range of 0.0 to 0. 25 percent. The Fed will also continue to buy 120 billion dollars (102 billion euros) of securities per month.

The im The purchase of securities decided last year because of the Corona crisis is intended to improve the liquidity of the financial markets and facilitate the provision of loans for households and companies.

The reduction in purchases was already becoming apparent. In late July, looking at the program, the Fed said the US economy was making progress on full employment and inflation targets. This has now been confirmed. And the Fed promised that a slowdown in the repurchase rate could “soon” be justified if this development continues as expected Securities purchases could be scaled back. “We haven’t decided the pace yet,” Powell said. Overall, the central bank considers a gradual meltdown of purchases to be appropriate, which could be concluded in the middle of next year. Powell said he does not assume that there will be a rate hike before the end of the securities purchases.

The Fed is currently buying around 80 billion a month Dollars in government bonds and mortgage-backed securities valued at 40 billion dollars. The European Central Bank (ECB) recently announced a slight curtailment of its bond purchase program.

Meanwhile, the current interest rate level is justified until full employment prevails on the labor market and the inflation target of around two percent has been reached the Fed said after a meeting of the relevant money market committee. Powell stressed that tapering asset purchases should not be seen as a countdown to a rate hike. Previously, the step only became apparent 2023. Now the Fed decision-makers are preparing for 2022.

At the same time, the Fed lowered its forecast for economic growth this year. In June, the central bank had assumed an increase of 7 percent, now it expects growth of 5.9 percent. The rapid recovery of the US economy from the Corona crisis had recently slowed down due to the spread of the delta variant. For 2022, however, the central bank is now expecting growth of 3.8 percent after the June forecast of 3.3 percent.

In terms of inflation, the Fed is expecting this Year 4.2 percent instead of the June forecast of 3.4 percent. Powell was convinced that it was a temporary effect – but at the same time admitted that inflation could remain high for the time being. For 2022 the Fed is now forecasting 2.2 percent after a forecast of 2.1 percent in June.

The Fed increased its forecast for the unemployment rate this year 4.8 percent high, from 4.5 percent in June. “The demand for labor is very strong,” said Powell. However, the delta variant has intervened in some areas such as the hospitality and travel industry. The increase in employment should pick up speed again once the current corona effects have been overcome.

On the financial markets, the US dollar initially reacted to the statements with strong exchange rate fluctuations. Then he increased noticeably. The euro fell below the $ 1. 17 mark. US Treasuries fell, but losses were limited. The US benchmark index Dow Jones Industrial closed one percent higher.

US chief economist Paul Ashworth from Capital Economics highlighted the significantly raised key rate forecasts by the Fed. Presumably this is due to the fear that the current high inflation will not be such a temporary event as the Fed has assumed so far.

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