US Federal Reserve announces imminent throttling of asset purchases

Washington (dpa) – The US Federal Reserve (Fed) is sticking to its loose monetary policy, but has the prospect of an imminent throttling of the billion-dollar securities purchases.

At the same time, the updated forecasts could for economic growth, inflation and unemployment indicate conditions for an interest rate hike in the coming year.

For the time being, the key interest rate will remain in the low range of 0.0 to 0. 25 percent, as the central bank announced on Wednesday. The Fed will also continue to buy 120 billion US dollars (102 billion euros) of securities per month.

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 bond program says the US economy has made progress on full employment and inflation targets. This has now been confirmed. And the Fed announced that a slowdown in the repurchase rate “soon” could be justified if the development continues as expected.

The Federal Reserve did not provide any information on when and how quickly Asset purchases could be scaled back. “We have not yet decided on the pace,” said Fed Chairman Jerome Powell. The decision could be made at the next meeting in November, he 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 , emphasized the Fed after a meeting of the responsible money market committee.

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 somewhat due to the rapid spread of the delta variant. For 2022 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 now 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 the coming year, the Fed is now forecasting 2.2 percent after a forecast of 2.1 percent in June.

The Fed’s forecast for the unemployment rate this year has increased to 4.8 percent , from 4.5 percent in June. “The demand for labor is very strong,” said Powell after the decision. However, the delta variant intervened in some areas such as the hospitality and travel industries. The increase in employment should pick up speed again once the current corona effects are overcome, he emphasized.

Most recently, the central bank’s growth forecasts have mostly reflected the development of the pandemic. Last December, before the vaccinations were used, the central bank had expected 2021 an increase of 4.2 percent. In March it was already 6.5 percent, in June – thanks in part to the lower number of infections and the increasing vaccination rate – it was already 7 percent. Since June, the number of infections and deaths has risen again because of the delta variant.

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