Jerome Powell’s Fed has announced a strong acceleration of tapering, the program to reduce asset purchases that the central bank carries out every month.
As of January 2022, asset purchases will increase to $ 60 billion worth of bonds (compared to $ 120 billion per month purchased under the original Quantitative easing plan launched in 2020 to counter the effects of the Covid pandemic).
The program cuts totaled $ 15 billion in November, then doubled to $ 30 billion in December, and will double to $ 60 billion starting in January, ahead of further reductions in 2022.
At that point, when the Fed decides to totally zero out on monthly asset purchases, likely in late winter or early spring, the Fed will start raising interest rates.
The dot plot of the FOMC, the monetary policy arm of the central bank, showed that Fed officials are expecting three rate hikes next year, compared to a single tightening that was previously expected next year. Also from the dot plot, two monetary squeezes emerge in 2023 and two more in 2024, for a total of seven rate hikes in the period between 2022 and 2024.
“Economic developments and changes to the outlook endorse this evolution of monetary policy, which will continue to provide appropriate support to the economy,” Fed chief Jerome Powell commented in a press conference following the FOMC announcement.
The rates were left unchanged in the range between 0 and 0.25%. The statement states that rates will remain at the current level “until labor market conditions have reached levels consistent with the Commission’s assessments of maximum employment”.