United States: Fed begins two-day meeting to discuss asset purchase cut

The United States Federal Reserve began a monetary policy meeting on Tuesday, at the end of which it should, according to market consensus, announce that it will begin to reduce its asset purchases.

The meeting of the Monetary Policy Committee (FOMC) will culminate on Wednesday at noon, with a press release and the usual press conference of its president, Jerome Powell.

This meeting is highly anticipated by the markets, which estimate that the agency will begin to reduce the support it has given to the economy since the pandemic began.

Specifically, the Fed should announce that it will reduce its purchases of assets such as Treasury bonds with which it injects money into the economy at the rate of $ 120 billion per month. It should also spell out the timetable to bring them to zero, probably by the middle of next year.

The rate of cut could mean about 15,000 million dollars less each month: 10,000 million in the case of Treasury bonds and 5,000 million for financial products attached to mortgage loans, according to what emerged from the last meeting of the bank’s leaders at the end of September.

These purchases allowed credit to continue to flow and crushed long-term interest rates, thus avoiding a convergence of interest rates. economic crisis with a financial crisis.

But the recovery is on track and inflation is forecast to be stronger and more persistent than expected in the United States, particularly due to disruptions in the global supply chain in a context of strong consumer demand.

On the other hand, the reference interest rates, which since March 2020 have been at a minimum of 0% -0.25%, will not rise in the short term.

Some central banks have already raised their rates, for example in Norway, New Zealand or Brazil. England could announce a hike on Thursday.

The European Central Bank (ECB) meanwhile, maintained its support measures.

AFP