Thursday 14 October 2021 10:45 am

US Fed to launch tapering as soon as next month

The world’s most influential central bank has provided the strongest signal yet that it is preparing to rein in the wave of stimulus it unleashed in response to the Covid-19 crisis.

The US Federal Reserve is considering pulling back asset purchases designed to shield the American economy from the worst effects of the pandemic as soon as next month, according to minutes breaking down the details of its September meeting.

The Fed’s rate setters agreed at last month’s meeting that “provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate.”

If the Federal Open Market Committee (FOMC) said that if tapering was agreed as an appropriate course of action at the October meeting, “the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December,” the meeting notes showed.

The Fed has been buying $120bn of debt each month to pump liquidity into the US economy to cushion the blow from the Covid-19 crisis.

Central banks have been accused of maintaining accommodative monetary policy for too long, which is contributing to global inflationary pressures.

The Bank of England has adopted a more hawkish tone in recent weeks, with governor Andrew Bailey and external rate setting committee member Michael Saunders indicating they are agitated by the scale and pace of the inflation spike in the UK.

The Office for National Statistics (ONS) estimates CPI inflation in Britain rose at its fastest monthly pace on record on an annual basis last month, hitting 3.2 per cent. 

Fed chair Jerome Powell has stressed the US jobs market needs to reach its full potential before the central bank tightens policy.

Last month, the US economy registered over 10m job openings as worker shortages continue to persist. However, demand for labour is high, indicating unemployment is unlikely to rise in the coming months.

The “dot plot”, which measures FOMC members’ expectations of rate hikes, indicated it could begin raising interest rates as soon as 2022.