Fed Chairman Jerome Powell prepares the turning maneuver
Photo: Mary Calvert / REUTERS
The US Federal Reserve is sticking to its very loose monetary policy for the time being, but is heading towards a less generous line.
The key interest rate will initially remain in the low range of 0.0 to 0.25 percent, as the central bank announced on Wednesday after its interest rate meeting in Washington.
The $ 120 billion monthly security purchases will also continue for the time being.
However, the central bank signaled that purchases could soon be scaled back (tapering).
"If progress continues broadly as expected, the committee believes that a slowdown in bond purchases may soon be warranted," the Fed said.
The economy was moving towards the goals of the central bank.
Inflation has been high recently while the economy and labor market recovered from the pandemic.
Fewer securities purchases already possible from November
Fed chief Jerome Powell said after the interest rate meeting that the monetary policy committee had discussed the pace of the proposed exit.
An initial reduction in security purchases could take place as early as the next interest rate meeting in November.
The conditions for this are as good as met.
An end to the process is likely to be appropriate in mid-2022.
Powell underlined, however, that this was not a signal for an initial rate hike.
The purchase of securities decided last year because of the corona crisis is intended to improve the liquidity of the financial markets and facilitate the provision of loans for households and companies.
The Fed is aiming for full employment and stable prices.
It wants to see "substantial" progress toward its goals before reducing its asset purchases.
First rate hike in 2022, three more possible in 2023
Meanwhile, the Fed may face more rate hikes than previously thought.
New projections by central bankers point to an interest rate hike in 2022, followed by possibly three hikes in 2023. So far, the forecasts had indicated only two hikes for 2023.
The economic forecasts for 2021 have changed significantly.
While the growth forecast was reduced from 7.0 to 5.9 percent, the inflation projection was increased from 3.4 to 4.2 percent.
For the years 2022 and 2023, the growth and inflation forecasts have been raised for the most part.
The current interest rate level, meanwhile, is appropriate until there is full employment in the labor market and the inflation target of around two percent has been reached, stressed the Fed after the interest rate meeting.
Signal for a turnaround in monetary policy
Bank economists interpreted the announcements as a signal for a turnaround in monetary policy.
The Fed is advising the early entry into the exit from the ultra-loose monetary policy, said analyst Elmar Völker from the Landesbank Baden-Württemberg.
An official schedule is expected for the next meeting in November, so the repatriation of purchases could begin in December.
US chief economist Paul Ashworth from Capital Economics highlighted the Fed's significantly raised key interest rate forecasts.
Presumably, this is due to the fear that the current high inflation is not such a temporary event as the Fed had previously thought.
In the financial markets, the US dollar initially reacted to the statements with strong exchange rate fluctuations.
Recently, however, it increased noticeably.
The euro, on the other hand, was under pressure and fell below the $ 1.17 mark.
US Treasuries fell in price.
However, the losses were limited.
The US stock markets closed clearly in positive territory on Wednesday.
Even before the Fed's decision, the Dow Jones and Nasdaq were both up around 1 percent.
There was little movement in the last two hours of trading after the decision was announced.
la / dpa
