Federal Reserve Chair Jerome Powell announced Wednesday the Fed will speed up the tapering of it pandemic-era support. The move came in response to rising inflation and falling unemployment.
“In light of inflation developments and the further improvement in the labor market, the committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities,” the Fed said in a statement. “Beginning in January, the committee will increase its holdings of Treasury securities by at least $40 billion per month and of agency mortgage‑backed securities by at least $20 billion per month.”
The Fed added it would likely end these purchases in March, which Powell said was a “few months sooner than we anticipated in early November” in a news conference Wednesday. The video above shows clips from the news conference.
Once the pandemic support is gone, the Fed can begin raising its benchmark rate. The Fed saiid it expects to raise that rate three times in 2022, up from the Fed’s projection of one rate raise back in September.
The Fed’s speeding up to taper pandemic-era support reflects its acknowledgement that inflation has persisted much longer than they expected. On Wednesday, the Fed predicted inflation will reach 5.3% by the end of the year, before falling to a 2.6% annual rate by the end of 2022.
“While the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic, price increases have now spread to a broader range of goods and services,” Powell said. Those goods include food, energy and autos, and services including apartment rents, restaurant meals and hotel rooms. “Wages have also risen briskly, but thus far wage growth has not been a major contributor to the elevated levels of inflation.”
As for unemployment, it has fallen steadily since it reached its peak back in January.
“Job gains have been solid in recent months, averaging 378,000 per month over the last three months,” Powell said. “The unemployment rate has declined substantially, falling six tenths of a percentage point since our last meeting, and reaching 4.2% in November.”
The Fed predicts the unemployment rate falling to 3.5% by the end of next year, which would match pre-pandemic levels.