US Federal Reserve Announces Tapering of Asset Purchases
US Federal Reserve Announces Tapering of Asset Purchases
The US Federal Reserve has officially announced the commencement of tapering its asset purchase program, signaling a shift towards tightening monetary policy amid a strengthening economy and rising inflation. Since the onset of the COVID-19 pandemic, the Fed has been purchasing $120 billion in Treasury and mortgage-backed securities monthly to support financial markets and stimulate economic activity.
In a statement released after the Federal Open Market Committee (FOMC) meeting, Chair Jerome Powell stated, “In light of the substantial further progress the economy has made toward our goals, the Committee decided to begin reducing the monthly pace of its asset purchases.” The tapering process will involve a reduction of $15 billion per month, with the program expected to conclude by mid-2026.
The decision reflects the Fed’s confidence in the ongoing economic recovery, characterized by robust job growth and consumer spending. However, inflation has risen to 3.9%, well above the Fed’s 2% target, prompting concerns about overheating.
Financial markets have reacted to the announcement with increased volatility. The US dollar has strengthened against a basket of major currencies, as expectations of higher interest rates make dollar-denominated assets more attractive to investors. Forex traders are adjusting their strategies in anticipation of potential rate hikes in the latter half of 2025.
While the tapering of asset purchases marks a significant policy shift, Chair Powell emphasized that decisions regarding interest rates will be made based on evolving economic conditions. He noted, “We are prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of our goals.”
