The Federal Reserve Open Market Committee is tapering its support for the economy as more people become vaccinated against Covid-19 and inflationary pressures remain.
The FOMC unanimously opted to reduce its monthly pace of bond purchases from $120 billion to $105 billion on Wednesday. The committee expects to continue its massive support for the economy until maximum employment is reached and long-term inflation remains “moderately above” 2 percent.
“Similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook,” the FOMC stated.
The influx of Fed support started in March 2020 as a significant portion of the U.S. economy shuttered following the onset of Covid-19. Last December, the committee indicated it would continue increasing its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month “until substantial further progress has been made toward its maximum employment and price stability goals.” The FOMC noted that vaccination progress and the reopening of the economy have contributed to growth since late last year.
As reported by CNBC, annual inflation increased at its fastest pace in more than 30 years in September — a 4.4 percent annual rate — despite a decline in personal income. However, the FOMC finds elevated inflation to be tertiary and related to the reopening of the economy. “Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses,” the FOMC stated.