Fed Refrained from Giving Any Hint about QE Tapering

Central banks news

The Fed voted unanimously to leave the Fed funds rate target at 0-0.25%. It also decided to keep the asset purchases at US$120B per month. As expected, the Fed upgraded the economic assessments but continued to warn of downside risks. Fed Chair Jerome Powell at the press conference noted that the Committee has not talked about tapering.

Changes in the policy statement focus on the economic assessment. The members acknowledged that “indicators of economic activity and employment have strengthened”, driven by “progress on vaccinations and strong policy support”. They also noted that rising inflation was “largely reflecting transitory factors”. Despite the upbeat economic developments, the Fed warned that “the ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain”.

At the press conference, Powell revealed that the Committee has not talked about tapering. He affirmed that tapering needs “substantial further progress which will take some time to achieve”. He also emphasized that upward pressure on prices this year would be “temporary”, driven by bottlenecks disrupting supply chains. He also stressed that there are “many differences” between the current situation and the inflationary spiral of the 1960s and 1970s.

Despite Fed’s efforts to maintain a cautious tone and refrained from giving any hint about tapering, the strong economic momentum and further pickup in inflation later in the year could justify communication of the tapering plan.