Fed Says Tapering Assets Purchases May Be Warranted Soon

Citing progress towards its goals of maximum employment and price stability, the Federal Reserve hinted Wednesday that tapering of the central bank's asset purchases could begin in the near future.

Photo Insert: The US Federal Reserve

The Fed said in the announcement of its latest monetary policy decision that a "moderation in the pace of asset purchases may soon be warranted" if progress towards its dual goals continues broadly as expected.

The central bank currently plans to continue its bond purchases at a rate of at least $120 billion per month but is expected to begin scaling back later this year.

The comments about tapering asset purchases came as the Fed announced its widely expected decision to keep the target range for the federal funds rate at 0 to 0.25 percent.

The Fed also reiterated that it expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with maximum employment and inflation is on track to moderately exceed 2 percent for some time.

However, the latest projections from the Fed showed a majority of officials now expect interest rates to be raised next year compared to previous forecasts calling for the first-rate hike in 2023.

Fed officials also downwardly revised forecasts for U.S. GDP growth in 2021 to 5.9 percent from 7.0 percent, while forecasts for GDP growth in 2022 were upwardly revised to 3.8 percent from 3.3 percent.

Core consumer price inflation is expected to reach 3.7 percent this year compared to the 3.0 percent forecast in June. Price growth is expected to pull back to 2.3 percent in 2022, which is still above the Fed's 2 percent target. In the statement, the Fed described inflation as "elevated" but continued to attribute the price growth to "transitory factors."

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