The Federal Reserve is expected to announce that it is expanding its $ 120 billion monthly bond purchase program.
The Federal Open Market Committee will release its latest statement Wednesday at 2 p.m. Eastern Time, followed by a press conference by Chairman Jay Powell.
Economists expect the Federal Reserve to say it has made “significant further progress” towards its goals of averaging 2 percent inflation and maximum employment, and will begin to reverse the contingency measures it took last year in order to the economy to offset the damage caused by the corona pandemic.
The Fed has signaled that it is likely to increase its government bond purchases by 10 billion. Should the process begin on November 15, as expected, the stimulus package would expire entirely by June 2022.
The announcement comes amid inflationary pressures that have taken policymakers and economists by surprise.
Stormy consumer demand has headed head-on with acute supply chain disruptions, causing prices in some sectors to skyrocket for longer than expected. Rising rent and wage pressures amid severe labor shortages have also given cause for concern that inflation will prove tougher than the Fed’s “preliminary” assessment currently suggests.
The terms now warrant changes to the Fed’s statement, economists said, including recognizing that supply-related issues could hurt economic recovery and that the central bank is carefully monitoring incoming inflation data.
The Fed’s policy rate, which is close to zero, is not expected to be adjusted, and Powell is likely to reiterate that the start of tapering is not a signal of the timing of future rate hikes.
However, that message has been called into question in recent weeks as investors have increasingly bet that the Fed will start hike rates soon after the end of its stimulus program in June.
The move corresponded with abrupt measures by a number of central banks around the world, including the Reserve Bank of Australia and the Bank of Canada, to tighten monetary policy.
As a result, short-dated US Treasuries have risen sharply, with the policy-sensitive two-year yield now trading just below its most recent high of over 0.50 percent. At the beginning of September it was closer to 0.20 percent.