US Federal Reserve to cut bond purchase
Nov 04, 2021
Washington [US], November 4 : The Federal Reserve on Wednesday (local time) announced to cut bond purchases that supported the economy throughout the COVID-19 pandemic by November.
The central bank announced that it will reduce the pace of monthly bond-buying by USD 10 billion for Treasury Securities and USD 5 billion for agency mortgage-back securities, reported CNN.
This marks the formal shift away from policies that were placed in March 2020 due to the coronavirus pandemic that was placed to fight massive layoffs during COVID-19.
It was done due to progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen in the US.
Meanwhile, the Fed will still buy at least USD 70 billion Treasury securities and at least USD 35 billion mortgage-backed securities this month, reported CNN.
Starting December, these amounts will fall to at least USD 60 billion and at least USD 30 billion, respectively. This is what's known as tapering and was expected by investors and analysts.
The Fed's announcement followed months of escalating hints and signals from FOMC members that the bank would begin to taper before the end of the year. The bank has purchased trillions of dollars in Treasuries and mortgage bonds since the outset of the crisis, and now holds a record $8.5 trillion in such securities on its balance sheet.
The Fed is hardly ripping off the stimulus Band-Aid - It will maintain its target interest rates near zero.
Yet it plans to make similar reductions in the pace of its asset purchases each month in the future. Still, it said it's ready to slow the pace or reverse its tapering if the economic outlook changes, reported CNN.
