The Federal Open Market Committee on Wednesday laid out a framework for reducing — or tapering — the emergency bond purchases it's been making since March 2020.
Why it matters: These purchases, totaling $120 billion per month, were a keystone in the federal government's rescue of financial markets, which went into free fall soon after countries around the world instituted widespread stay-at-home orders.
- More recently, as the U.S. economic recovery has picked up steam, critics have called on the Fed to pull back on the support to keep the economy from overheating and keep inflation in check.
Details: The Fed said that it will begin tapering the bond purchases this month.
- Currently, it's buying $80 billion in Treasury bonds and $40 billion in mortgage-backed securities every month — and it will reduce those purchases to $70 billion and $35 billion, respectively.
- In December, the Fed will cut purchases further, to $60 billion in Treasuries and $30 billion in mortgage securities.
- The Fed aims to continue reducing its purchases by a total of $15 billion per month after that, it said.
The big picture: As expected, the Fed is keeping the federal funds rate at zero for now. It acknowledged that inflation remains elevated, but said that still largely reflects transitory factors.
- Markets will be listening for comments during Federal Reserve chair Jerome Powell's 2:30pm ET press conference for hints about the committee's thinking on rate liftoff.
- At the time of its September meeting, the Fed's "dot plot" — which indicates in aggregate when committee members think a rate hike will be appropriate — showed that half of the officials expect to see a hike next year.
Editor's note: This story has been corrected to reflect that all dollar amounts are in the billions.
