Fed Takes First Step Toward Tapering

"Economic Progress Toward Goals"
Tapering This Year Not Ruled Out...Possible Announcement as Early as September

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. central bank, the Federal Reserve (Fed), has assessed that there has been progress toward its monetary policy goals, making it possible to consider tapering (reducing asset purchases) within this year. Some predict that the Fed may announce the timing of tapering as early as September.

[Image source=Reuters Yonhap News]

On the 28th (local time), the Fed announced after a two-day Federal Open Market Committee (FOMC) regular meeting that it decided to maintain the zero-level interest rate and monthly asset purchases of $120 billion.

The Fed further stated, "We will continue to purchase assets until substantial further progress has been made toward maximum employment and price stability goals, and the economy has made progress toward these goals." It also said, "We will continue to assess the degree of progress at upcoming meetings." Although it did not mention the method or timing of tapering, it implied that there were active discussions among Fed officials about tapering and that decisions on this matter would be made in future meetings.

Fed Chair Jerome Powell, at the subsequent press conference, said, "We still have some way to go until we reach ‘substantial further progress’ toward the maximum employment goal," adding, "We want to see strong employment indicators." Nevertheless, Powell suggested that tapering remains an option, expecting that the spread of the COVID-19 Delta variant would not significantly impact U.S. economic growth. He also indicated that tapering was a key topic of this meeting by stating that the tapering discussion was conducted in depth.

Regarding this, the Associated Press (AP) assessed that the Fed has begun discussions on withdrawing accommodative monetary policy, showing confidence in implementing tapering. Gus Faucher, chief economist at PNC Financial Group, diagnosed that "the tapering clock has started to move."

After the statement and Powell’s remarks, most U.S. experts expected the Fed to announce tapering after the December FOMC meeting and implement it in January next year, but some investment banks predicted that an announcement could come as early as September with implementation in December. The Wall Street Journal (WSJ) also understood that the Fed signaled it could begin normalizing monetary policy in the latter half of this year.

In the U.S., recent consumer price index (CPI) increases of 5.4% and soaring housing prices have intensified demands for the Fed to adjust its accommodative monetary policy.

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