Daily Management Review

US Federal Reserve to start cutting back on bond purchases


The US Federal Reserve (Fed) will reduce asset purchases in the market as macro indicators improve, which is likely to happen well in advance of a decision to raise interest rates, Fed Chief Jerome Powell said during his speech.

The Fed expectedly kept the benchmark interest rate at 0-0.25% per annum at the end of its last meeting, 16-17 March. Furthermore, the regulator announced that it plans to continue asset purchases (also as an element of soft monetary policy) at a rate of 120 billion dollars per month until significant progress is made towards employment and inflation targets. The next meeting is scheduled for 27-28 April.

Powell also reiterated that the Fed would wait for inflation at 2% and a full recovery of the labour market (these are the Fed's two official targets under its "mandate") before it tightens monetary policy. And, according to him, such a recovery is unlikely to occur before 2022.

As part of its March meeting, the Fed projected that the rate would remain at the current 0-0.25% per annum until 2023. "Most committee members didn't see (in their forecasts - ed.) a rate hike until 2024, but that's not a committee forecast... it's just an estimate. The markets are paying too much attention to what we call economic forecasts and I would focus more on (economic growth - ed.) outcomes," Powell said.

source: cnn.com