FOMC Begins to Reduce Pace of Asset Purchases

The Federal Open Market Committee said today that it will begin reducing the monthly pace of its asset purchases since the economy has made substantial progress toward the committee’s goals. The committee said that it will reduce the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities.

“Last December, the Committee stated its intention to continue asset purchases at a pace of at least $120 billion per month until substantial further progress has been made toward our maximum employment and price stability goals. At today’s meeting, the committee judged that the economy has met this test, and decided to begin reducing the pace of its asset purchases,” said Federal Reserve Chairman Jerome Powell said in a press conference after the release of the FOMC statement.

Powell said that if the economy evolves broadly as expected, similar reductions in the pace of net asset purchases will likely be appropriate each month, and increases in securities holdings “would cease by the middle of next year.” He cautioned, however, that “our decision today to begin tapering our asset purchases does not imply any direct signal regarding our interest rate policy. We continue to articulate a different and more stringent test for the economic conditions that would need to be met before raising the federal funds rate.”

Regarding inflation, Powell said that the FOMC believes that the economy will adjust to the current supply and demand imbalances and that as it does, inflation will decline to levels closer to the FOMC’s 2% longer-run goal. “Global supply chains are complex; they will return to normal function, but the timing of that is highly uncertain,” said Powell.