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Financial News: Fed Announces Plans To Begin Scaling Back Asset

Fed Announces Plans To Begin Scaling Back Asset Purchases

11/03/2021 - 14:22:00 (RTTNews)

(RTTNews) - In a widely expected move, the Federal Reserve announced Wednesday that is has decided to begin scaling back its asset purchases later this month.

The Fed said it plans to reduce its $120 billion in monthly bond purchases by $15 billion per month, citing the substantial further progress the economy has made toward its goals of maximum employment and price stability.

Reflecting the move, the Fed plans to increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage-backed securities by at least $35 billion per month beginning later this month.

Beginning in December, the central bank will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month.

The Fed expects similar reductions in the pace of net asset purchases will likely be appropriate each month but said it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.

In the statement announcing the decision, the Fed said indicators of economic activity and employment have continued to strengthen amid progress on Covid-19 vaccinations and strong policy support.

The statement also acknowledged supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors, although the Fed continued to describe the factors leading to elevated inflation as transitory.

The Fed noted risks to the economic outlook remain but predicted progress on vaccinations and an easing of supply constraints would lead to continued gains in economic activity and employment as well as a reduction in inflation.

Along with the plan to begin reducing its asset purchases, the Fed also announced its widely expected decision to keep the target range for the federal funds rate at 0 to 1/4 percent.

The central bank said it expects interest rates to remain at near-zero levels until labor market conditions have reached levels consistent with its assessments of maximum employment and inflation is on track to moderately exceed 2 percent for some time.

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