US Federal Reserve curbs economic aid worth billions

After its massive aid programs in the Corona crisis, the US Federal Reserve wants to start tightening its monetary policy.

The first step is to curb their stimulus bond purchases.

Washington - In view of high inflation and solid economic growth, the US Federal Reserve is initiating the exit from its enormous aid programs to deal with the Corona crisis.

The Federal Reserve (Fed) announced on Wednesday that it would reduce its economic asset purchases by $ 15 billion to the current volume of $ 120 billion per month for November. With the program, the Fed is pumping additional money into the financial markets to keep lending rates low and stimulate the economy.

The key interest rate, which is in the extremely low range of 0.0 to 0.25 percent, will not change for the time being.

The monetary policy decisions had been expected in the financial markets, the Fed had already prepared investors accordingly.

The tapering of bond purchases is likely to continue gradually in the coming months in the same order of magnitude, so that the program would expire in June 2022.

However, the monetary authorities reserve the right to adjust the pace if necessary depending on economic developments.

Worries about persistently high inflation are unfounded?

The US stock markets initially reacted calmly to the monetary policy decisions. Federal Reserve Chairman Jerome Powell wanted to explain the decisions on Wednesday evening at a press conference and answer questions from journalists. The main source of tension on the stock markets is how the Fed is positioning itself on persistently high inflation and what signals it is sending about the possible schedule and pace of interest rate hikes. In its statement, the Council of Central Bankers emphasized that the higher inflation in the US was primarily due to temporary factors.

The Fed reacted to the corona crisis with an extreme easing of its monetary policy.

But meanwhile the central bank is under pressure to shift down a gear.

The US inflation rate rose to 5.4 percent in September and thus reached - as in June and July - the highest level since 2008. Inflation is thus well above the Fed's target of two percent.

In view of high energy prices and persistent supply problems in world trade, it is becoming increasingly clear that increased inflation is not - as the Fed initially assumed - a relatively quickly passing phenomenon.

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Meanwhile, the US economy has largely recovered from the crisis.

In the summer months, growth lost significant momentum due to supply bottlenecks in the industry and the increasing number of corona cases.

But the situation no longer seems critical.

For example, job creation in the private sector accelerated unexpectedly in October, according to data from the labor market service provider ADP.

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In September the US unemployment rate fell to 4.8 percent.

dpa