The US Federal Reserve (Fed) is clarifying its plans on how to withdraw the billions of dollars it has invested in the economy during the pandemic process.
It was announced that the Fed’s asset purchases this month will decrease by $ 15 billion.
In its decision announced this evening, the Fed also released interest rates in the range of 0 to 0.25 percent.
Since the Covid-19 pandemic began, the Fed has been buying $120 billion in assets every month.
Fed Chairman Jerome Powell said he expects economic growth to accelerate for the rest of the year.
On the other hand, he announced that they could “be patient” about the interest rate hike.
With the advancement of vaccination in the US, the opening of businesses has accelerated the growth rate of the economy.
However, problems in the supply chain and a lack of workforce make it difficult for businesses to keep up with the increasing demand.
Inflation in the country reached its peak in 30 years with 4.4 percent in September.
Powell said that this is well above the 2 percent target, and that price increases in some sectors are significant.
To combat rising inflation, central banks often aim to raise the interest rate and reduce demand.
However, Powell reiterated his view that these price increases are temporary and stated that high inflation will continue in the first half of next year and then decline in the third and fourth quarters.
Due to the fact that many products are stuck in ports, chip shortage affecting many sectors, including automotive, and the insufficient number of heavy vehicle drivers, the prices paid by the US for products such as food, construction materials, second-hand vehicles, consumables and furniture have increased.
The Federal Open Markets Committee, which sets the Fed’s monetary policy, announced that it is planned to end asset purchases by July 2022, by reducing the amount of asset purchases by the same amount each month.
Powell stated that this timetable could be changed according to the needs of the economy, and that an interest rate hike would only be possible after that point.
Gurpreet Gill, macrostrategist of Goldman Sachs bank, said that the announced plans are in line with the expectations of the markets, but what the results will be is not yet fully predicted:
“The course of the pandemic, inflation, inflation expectations or an increase in salaries may lead to changes in these policies.”
Seema Shah, global chief strategist at the asset management company Principal Global Investors, said: “The Fed cannot control the supply chains. So inflation is not fully under the Fed’s control.”
“Inflation will remain high for a longer period of time, and inflation expectations are increasing.
“The Fed’s ability to keep rates low for too long is limited.”
Powell’s four-year term as Fed chair expires in February.
US President Joe Biden has to decide by February whether he can reappoint Powell.
Traditionally, US presidents do not replace Fed chairmen.
But some politicians on the left wing of the Democratic Party say that US President Trump should violate this tradition and replace former Fed Chair Janet Yellen with appointee Powell.
