Powell: Tapering Acceleration Will Be Discussed At December FOMC Meeting

The Fed Chair said that the pace of reducing bond purchases could be implemented ahead of the announced schedule.

Fed Chair Jerome Powell indicated that the Fed would accelerate the pace of tapering. In testimony Tuesday (30/November) tonight, the head of the US central bank said that the pace of reducing bond purchases could be carried out faster than the schedule announced in early November.

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"At this point, the economy is very strong, and inflationary pressures are very high," said Powell, "Therefore, in my view, it is appropriate to consider finalizing the reduction in asset purchases that we announced at last November's meeting, with the possibility of (ending) a few months sooner. I hope we will discuss it at the next meeting (December FOMC meeting -ed)."

In the previous schedule, the asset tapering was scheduled to be completed around June 2022. However, if the committee chooses to accelerate it, the asset tapering may be completed in March or April.

Powell added that the bond-buying program (quantitative easing) has succeeded in supporting US economic activity. Therefore, as the economy progresses, the urgency of quantitative easing has diminished. Powell also no longer uses the word "transitory" in referring to rising inflation.

"The need for that (stimulus) is clearly easing as the economy continues to strengthen. As we can see, inflationary pressures are continuing significantly. That's why we announced that we would be tapering. And that's why anyway, we said that we would discuss accelerated tapering a little bit more. quickly in the next meeting," explained Powell.

Powell did not specify the rate of acceleration of the tapering to be applied. However, Citigroup economists predict that the US central bank will double the tapering amount from $15 per month to $30 billion per month.

The acceleration of tapering often triggers the assumption that an increase in interest rates can be carried out at any time in a faster time. The market is currently projecting a 0.25% increase in the Fed's interest rate in 2022. However, Powell emphasized that the acceleration of tapering is not an indication of an accelerated rate hike.

Following Powell's statement, bond yields rose while the US dollar fell along with the weakness in the stock market. At press time, the US Dollar Index was down 0.31% to 95.89, its lowest level since November 19.