- The Federal Reserve hinted Wednesday it might soon reverse its emergency asset purchases.
- The purchases aided financial markets and supported the recovery since they started in March 2020.
- If the recovery continues as expected, the Fed could start shrinking the purchases “soon,” the central bank said.
On Wednesday, the
inched closer to announcing its reversal of pandemic-era support that’s aided financial markets throughout the crisis, signaling the pullback could arrive before the end of the year.
The Federal Open Market Committee held interest rates near zero and maintained the size of its emergency asset purchases after meeting on Tuesday and Wednesday. The ruling extends the ultra-easy monetary policy set by the Fed in March 2020 to prop up the US economy.
The central bank has long indicated it will keep its support in place until “substantial further progress” toward stronger inflation and maximum employment were met. The recovery has since made progress toward both targets and officials could soon start the process of retracting the policy aid, the Fed said in a Wednesday statement.
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the central bank said.
The Fed has been buying at least $80 billion in Treasurys and $40 billion in mortgage-backed securities each month to support financial markets and ease monetary conditions. The purchases are the first policies set to be normalized, with interest rate hikes set to follow.
That tapering process is no easy feat. Financial markets largely expect a tapering announcement after the FOMC’s November meeting. Starting the process even later would suggest the economy isn’t as healthy as expected. And shrinking the purchases before the anticipated date could shock investors and trigger panic selling.
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