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 Fed 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 view on inflation, acknowledging that price increases were faster and longer-lasting than officials had predicted, but it still did not give up the use of the controversial term “temporary.” Given that inflation continues to rise, 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 in bond purchases is crucial, and the statement emphasized that investors should not regard the reduction in 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 there will be at most one rate hike 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.
Full statement
The full text of the statement of the Federal Open Market Committee meeting on November 3
At 2 am Beijing time on Thursday, the Federal Reserve announced that it will maintain the benchmark interest rate unchanged at 0%-0.25%. The Federal Reserve’s FOMC statement shows that the debt reduction plan will be launched in November to reduce the size of monthly asset purchases by US$15 billion; the pace of debt reduction will be accelerated in December; the monthly purchases of Treasury bonds and MBS will be adjusted to 70 billion and 35 billion respectively Dollar. The reason for the increase in inflation is expected to be temporary, and it is prepared to adjust the pace of reducing the scale of bond purchases if necessary. In December, the purchase volume of treasury bonds and institutional mortgage-backed securities was adjusted to 60 billion and 30 billion U.S. dollars, respectively.
The following is the full text of the Federal Open Market Committee policy statement issued by the Federal Reserve in Washington:
The Federal Reserve is committed to using all its tools to support the US economy during this challenging period, thereby promoting its goal of full employment and price stability.
With progress in vaccination and strong policy support, economic activity and employment indicators continue to strengthen. The sectors most adversely affected by the epidemic have improved in recent months, but the increase in new crown cases in the summer has slowed their recovery. The high inflation rate mainly reflects that expectations are temporary factors. The imbalance between supply and demand related to the epidemic and economic reopening has contributed to the sharp rise in prices in some areas. The overall financial situation remains accommodative, partially reflecting the impact of policy measures that support the economy and promote the flow of credit to American residents and businesses.
The path of economic development continues to depend on the development of the epidemic. The progress of vaccination and the easing of supply constraints are expected to support the continued growth of economic activity and employment, as well as the decline in inflation. Risks to the economic outlook remain.
The committee strives to achieve full employment and the inflation rate to reach 2% over a longer period of time. Since the inflation rate has been consistently lower than this longer-term target, the committee will seek to achieve an inflation rate moderately higher than 2% for a period of time, so that the long-term inflation average can reach 2% and the longer-term inflation expectations remain firmly anchored at 2%. The committee is expected to maintain its accommodative stance on monetary policy until these goals are achieved. The committee decided to maintain the target range of the federal funds rate at 0% to 0.25%, and expects that when labor market conditions reach a level consistent with the committee’s assessment of full employment, and the inflation rate has risen to 2%, it is expected to be within a period of time It is appropriate to maintain this target range before moderately exceeding 2%.
In view of the fact that the economy has made substantial further progress towards achieving the committee’s goals since December last year, the committee decided to start reducing the size of monthly net asset purchases, reducing the size of monthly purchases of US Treasury bonds and institutional mortgage-backed securities by 10 billion. US dollars and 5 billion US dollars. Starting later this month, the committee will increase its monthly holdings of at least $70 billion in US Treasury bonds and at least $35 billion in institutional mortgage-backed securities. Beginning in December, the committee will increase its holdings of at least $60 billion in U.S. Treasury bonds and at least $30 billion in institutional mortgage-backed securities every month. The committee believes that it may be appropriate to reduce net asset purchases by a similar amount every month, but if changes in the economic outlook make it necessary, the committee is ready to adjust the pace of purchases. The Fed’s ongoing securities purchases and holdings will continue to promote smooth market operations and create easy financial conditions, thereby supporting the flow of credit to residents and businesses.
In assessing the appropriate position of monetary policy, the Committee will continue to monitor the impact of follow-up information on the economic outlook. If there are risks that may hinder the achievement of the committee’s goals, the committee will be prepared to appropriately adjust its monetary policy stance. The committee’s assessment will consider a wide range of information, including public health information, indicators of labor market conditions, indicators of inflation pressure and inflation expectations, as well as financial and international developments.
Members who voted for the monetary policy action include: Chairman Jerome Powell, Vice Chairman John C. Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Mary C . Daly, Charles L. Evans, Randal K. Quarles and Christopher J. Waller.
Quick overview
The Fed’s interest rate decision: the official announced that it will reduce debt purchases by US$15 billion per month starting from November. Now is not a good time to raise interest rates
Fed interest rate decision: Taper officially begins to reduce $15 billion per month
The Fed’s FOMC statement and Chairman Powell’s keynote summary
Powell Conference: Monetary tools can not solve the bottleneck of the supply chain, inflation will fall next year
Federal Reserve: Maintain the target range of the federal funds rate at zero to 0.25%
Market interpretation
Analysis of the Fed’s previous Taper’s impact on the market, and how this round of QE is going
The boots are on the ground! How will the Fed’s announcement of the implementation of Taper affect the capital market?
Market influence
What happened to the Fed’s official announcement that crude oil plummeted and spot gold dived?
Three major U.S. stock indexes hit a record high for three consecutive trading days, international oil prices fell significantly
Spot gold fluctuates more than $8 in short-term after the Fed resolution statement
The Fed kept interest rates unchanged and initiated debt reduction in November, and gold prices fell short-term
(Source: CCTV News)
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