November 04, 2021

Fed holds rates, begins tapering asset purchases with monthly reductions of $15 billion

fedThe Federal Open Market Committee (FOMC) Wednesday maintained the federal funds target rate near its current range of 0 to 0.25 percent. The Committee acknowledged that the rise in COVID-19 cases has slowed the recovery in parts of the economy most affected, and inflation is "elevated, largely reflecting transitory factors.” In addition, the Committee announced that it would begin tapering asset purchases from the previous pace of $80 billion in Treasuries and $40 billion in agency mortgage-backed securities.

According to the FOMC, both November and December will see a 12.5 percent reduction in the pace of each type of asset purchase. At that pace, purchases will be wound down to zero by June 2022. In reference to the tapering, the committee said that it is "prepared to adjust the pace of purchases if warranted by changes in the economic outlook."

"As was broadly expected, the FOMC announced that it would begin tapering asset purchases," said NAFCU Chief Economist and Vice President of Research Curt Long in a new Macro Data Flash report. "The $15 billion per month pace of tapering was also in line with expectations and puts the Federal Reserve on track to wind down the process by June 2022.

"If inflationary pressures persist beyond the next month or two, a June date for a rate increase is likely," added Long. “However, NAFCU continues to believe that liftoff is more likely to occur later next in 2022.”

More insights from the meeting can be found in the new Macro Data Flash report. The FOMC is expected to meet next Dec. 14-15.