The US Federal Reserve announced on November 3 that it would reduce the scale of asset purchases by $15 billion from late November and adjust the speed of debt purchases as appropriate to reduce the stimulus to the market. At the same time, the Federal Reserve maintains the target range of the federal funds rate between zero and 0.25%. The US Federal Open Market Committee issued a statement after the Federal Reserve meeting that it will begin to reduce the scale of debt purchases “later this month.” In the process, the Federal Reserve currently purchases 120 billion U.S. dollars each month, which will reduce 15 billion U.S. dollars each month, including 10 billion U.S. dollars in Treasury bonds and 5 billion U.S. dollars in mortgage-backed securities. The committee stated that the decision was made because “since December last year, the economy has made substantial progress towards the committee’s goals.” The statement emphasized that the Fed has not preset a route and will adjust the process if necessary. The Fed’s move was in line with market expectations. Prior to this, the Federal Reserve issued a series of signals that it would begin to gradually reduce its economic stimulus plan to deal with the new crown epidemic. The Fed also slightly revised its views on inflation, acknowledging that price increases were faster and longer-lasting than officials had predicted, but it still did not abandon the use of the controversial term “temporary.” In view of the continued rise in inflation, many market participants had expected that the Fed would abandon the “temporary” wording. In addition, the committee also voted to continue not raising interest rates, in line with market expectations. The link between interest rates and the reduction of bond purchases is of utmost importance. The statement emphasized that investors should not regard the reduction of bond purchases as an imminent signal of interest rate hikes. According to the current timetable, the reduction in bond purchases will begin later in November and end around July 2022. Officials said they did not expect to start raising interest rates until the process was completed, and the forecast released in September indicated that interest rates would be raised at most once next year. Driven by supply chain congestion, strong consumer demand and long-term labor shortages leading to rising wages, the inflation rate in the United States has been at a high level for 30 years. Fed officials insist that inflation will eventually return to the 2% target, but recently stated that this may take longer.
Post time: Nov-04-2021