Fed Signals Tapering Coming Soon, Keeping Rates Near Zero

With the decline of the COVID-19 pandemic crisis, Fed stated that it is likely to begin reducing monthly asset purchases soon and signaled interest rate hikes may follow more swiftly than expected

With the decline of the COVID-19 pandemic crisis, the U.S. Federal Reserve will likely begin cutting its monthly bond purchases in November and signaled interest rate increases may follow more swiftly than expected.

The Federal Open Market Committee announced on Wednesday (September 22) that the meeting has a resolution to keep an interest rate in a range between 0% and 0.25%, as expected.

The Fed has been absorbing $120 billion in monthly bond purchases since the depths of the pandemic. Despite its decision to sustain this present rate of asset purchases, the Fed will begin slowing the pace of those purchases as early as November, based on the central bank’s optimism that the COVID-19 recovery is progressing.

Meanwhile, the Fed has stressed that the timing of a taper is not a “direct signal” on the timetable of rate hikes. However, economic projections showed that nine of the eighteen Fed members are ready to raise interest rates next year in response to inflation, which  the central bank anticipates to be 4.2% this year, more than double its 2% target rate.

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