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Powell announces Fed will taper down pandemic-era aid

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Federal Reserve chair Jerome Powell announced Wednesday afternoon the Fed will begin to taper down its pandemic-era aid as soon as later this month. The move has been expected, with Powell hinting at the November timeline back in September.

“I think if the economy continues to progress broadly in line with expectations,” Powell said after September’s Fed policymaking committee meeting. “I think we can easily move ahead at the next meeting”.

The Fed plans to taper down pandemic-era aid in the form of $120 billion in monthly bond purchases. According to a statement released Wednesday afternoon, the Fed said it will taper down by $15 billion a month. The Fed has reserved the right to change that pace of the taper, and may accelerate it if inflation gets worse. If they keep at the $15 billion a month pace, they will be fully done with bond purchases by the second half of 2022.

Wednesday’s decision comes as high inflation has continued to persist for much longer than Powell and many other economic officials initially expected. On Friday, the government said prices surged 4.4% in September from a year earlier. That’s the fastest 12-month increase in 30 years.

If inflation continues to be a problem by the time the Fed is done with its pandemic-era aid taper, inflation could play a factor when the Fed decides when to raise its benchmark short-term rate from zero. That’s where the rate has been since the pandemic began.

A rate increase would be intended to make sure inflation doesn’t get out of control. However, there is also a risk of discouraging spending and undercutting the job market and the economy before they’ve regained full health. Powell has said that he would like the job market to show further improvement before the Fed begins to raise its key short-term rate.

“I do think it’s time to taper, and I don’t think it’s time to raise rates,” Powell said last week. At its last meeting, about half the Fed’s policymakers forecast that the first rate hike would be in late 2022, with the other half projecting 2023 or later.

SIMONE DEL ROSARIO: IT’S OFFICIAL.

THE FEDERAL RESERVE JUST ANNOUNCED IT’LL START SCALING BACK BOND PURCHASES LATER THIS MONTH, PULLING BACK ON PANDEMIC AID FOR THE FIRST TIME. 

JEROME POWELL / FEDERAL RESERVE CHAIRMAN: “Our asset purchases have been a critical tool, they helped preserve financial stability early in the pandemic and since then have helped foster smooth market functioning and accommodative financial conditions to support the economy.”

SIMONE DEL ROSARIO: SINCE MARCH 2020 – THE FED HAS BEEN PUMPING 120 BILLION DOLLARS A MONTH INTO THE ECONOMY BY BUYING UP BONDS. THIS HAS MADE BANKS FLUSH WITH CASH. THAT ENCOURAGES MORE LENDING AND INVESTMENT AT LOWER INTEREST RATES – WHICH STIMULATES THE ECONOMY.

NOW THE FED IS SIGNALING THE ECONOMY IS STRONG ENOUGH ON ITS OWN TO START TAPERING BACK ON THE BOND BUYING, 15 BILLION AT A TIME.

INSTEAD OF SPENDING 120 BILLION A MONTH – THE FED SAYS THEY’LL SPEND 15 BILLION LESS, OR 105 BILLION, LATER THIS MONTH. NEXT MONTH THEY PLAN TO REDUCE PURCHASES BY ANOTHER 15 BILLION, TO 90 BILLION.

JEROME POWELL / FEDERAL RESERVE CHAIRMAN: “If the economy evolves broadly as expected, we judge that similar reductions in the pace of net asset purchases will likely be appropriate each month, implying that increases in our securities holdings would cease by the middle of next year. That said, we are prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”

SIMONE DEL ROSARIO: NOW WE TEND TO SEE THE EFFECTS OF TAPERING RIGHT AWAY – THROUGH STOCK MARKET VOLATILITY – AND HIGHER INTEREST RATES ON LOANS. BUT IT ALSO COULD HELP COOL DOWN THE INCREDIBLE INFLATION RATES WE’VE SEEN, MAKING THE COST OF LIVING MORE AFFORDABLE.

I’M SIMONE DEL ROSARIO FROM NEW YORK IT’S JUST BUSINESS.

Federal Reserve chair Jerome Powell announced Wednesday afternoon the Fed will begin to taper down its pandemic-era aid as soon as later this month. The move has been expected, with Powell hinting at the November timeline back in September.

“I think if the economy continues to progress broadly in line with expectations,” Powell said after September’s Fed policymaking committee meeting. “I think we can easily move ahead at the next meeting”.

The Fed plans to taper down pandemic-era aid in the form of $120 billion in monthly bond purchases. According to a statement released Wednesday afternoon, the Fed said it will taper down by $15 billion a month. The Fed has reserved the right to change that pace of the taper, and may accelerate it if inflation gets worse. If they keep at the $15 billion a month pace, they will be fully done with bond purchases by the second half of 2022.

Wednesday’s decision comes as high inflation has continued to persist for much longer than Powell and many other economic officials initially expected. On Friday, the government said prices surged 4.4% in September from a year earlier. That’s the fastest 12-month increase in 30 years.

If inflation continues to be a problem by the time the Fed is done with its pandemic-era aid taper, inflation could play a factor when the Fed decides when to raise its benchmark short-term rate from zero. That’s where the rate has been since the pandemic began.

A rate increase would be intended to make sure inflation doesn’t get out of control. However, there is also a risk of discouraging spending and undercutting the job market and the economy before they’ve regained full health. Powell has said that he would like the job market to show further improvement before the Fed begins to raise its key short-term rate.

“I do think it’s time to taper, and I don’t think it’s time to raise rates,” Powell said last week. At its last meeting, about half the Fed’s policymakers forecast that the first rate hike would be in late 2022, with the other half projecting 2023 or later.

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