Fed "Tapering to Start Late This Month... Not a Signal for Rate Hike" (Update)

Emergency Monetary Policy Normalization 'First Step' in Response to COVID-19 Crisis

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. Federal Reserve (Fed) has decided to reduce its monthly $120 billion asset purchases, which were introduced to respond to the economic crisis caused by COVID-19. This marks the beginning of normalizing the extraordinary monetary policy implemented in response to the emergency situation caused by COVID-19.

[Image source=Reuters Yonhap News]

On the 3rd (local time), following a two-day Federal Open Market Committee (FOMC) meeting, the Fed announced in a statement that it will start tapering asset purchases at the end of this month.

The Fed explained that this measure is being taken according to economic progress.

Accordingly, the Fed’s asset purchases will be reduced by $15 billion per month ($10 billion in Treasury securities and $5 billion in mortgage-backed securities), and are expected to end completely by July next year.

The Fed also warned that the tapering schedule could change depending on changes in the economic outlook.

Immediately after the COVID-19 outbreak, the Fed lowered the benchmark interest rate to near zero and supplied massive liquidity to the market through asset purchases.

While the Fed has supported accommodative monetary policy since the COVID-19 crisis, it has decided to revise the emergency monetary policy sooner than expected as employment recovers and inflation rises sharply.

On this day, the Fed kept the benchmark interest rate unchanged but reiterated that tapering should not be interpreted as a signal that a rate hike is imminent.

The Fed assessed that inflation is rising largely due to factors expected to be temporary, and that supply chain issues have played a significant role in price increases in some sectors.

This content was produced with the assistance of AI translation services.