Federal Reserve may ramp up tapering of bond-buying, enacted due to COVID-19

By Sommer Brokaw & Ariel Gans, Medill News Service
Federal Reserve may ramp up tapering of bond-buying, enacted due to COVID-19
Federal Reserve Chairman Jerome Powell, shown after President Joe Biden announced he would serve a second term, said Tuesday the central bank may discuss plans to accelerate tapering of bond buying at its next meeting. Photo by Yuri Gripas/UPI | License Photo

WASHINGTON, Nov. 30 (UPI) -- Federal Reserve Chairman Jerome Powell said Tuesday he expects policymakers to discuss ramping up the tapering of bond purchases, enacted as an emergency response to the COVID-19 pandemic.

Powell said in opening statements before the Senate Banking Committee hearing Tuesday that the recent rise in COVID-19 cases and emergence of the Omicron variant pose "downside risks to employment and economic activity and increased uncertainty for inflation," Bloomberg reported.


Democrats and Republicans expressed concerns at the hearing about high prices amid inflation.

The Federal Reserve has been buying $120 billion in government-backed securities on a monthly basis throughout much of the pandemic to bolster the economy, including $80 billion in treasury securities and $40 billion in mortgage-backed securities.

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Powell said he expects policymakers to discuss speeding up the tapering of monthly bond buying at the next committee meeting in mid-December.

"It is appropriate, I think, for us to discuss at our next meeting, which is in a couple of weeks, whether it will be appropriate to wrap up our purchases a few months earlier," Powell said in response to a question about the central bank's bond buying. "In those two weeks, we are going to get more data and learn more about the new variant."


The Federal Reserve announced its plans to start tapering back on its monthly bond purchases earlier this month.

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The Federal Open Market Committee, a committee within the Federal Reserve System, charged with overseeing open market operations, made the announcement.

The FOMC said in a statement then it would reduce its purchases by $10 billion for treasury securities and $5 billion for agency mortgage-backed securities beginning later this month.

"With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen," the statement said. "In light of the substantial further progress the economy has made toward the committee's goals since last December, the committee decided to begin reducing the monthly pace of its net asset purchases."

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Still, inflation was "elevated," the statement added.

"Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors."

Powell told lawmakers Tuesday that even though inflation has hit a 31-year high, the economy is still strong, and the Omicron variant won't send the economy back to levels at the beginning of the pandemic.

"More forecasters, including at the Fed, continue to expect that inflation will move down significantly over the next year as supply and demand imbalances abate," he said. "It is difficult to predict the persistence and effects of supply constraints, but it now appears that factors pushing inflation upward will linger well into next year."


Last week, the Nasdaq Composite slid as President Joe Biden nominated Powell, who was appointed by former President Donald Trump, for a second term, citing economic recovery after COVID-19.

Powell has slashed interest rates to near zero amid the pandemic, but the central bank is expected to hike rates by 2023.

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