US Federal Reserve to scale back $120bn bond purchases

The US Federal Reserve has announced plans to cut back on its quantitative easing programme

US Federal Reserve                                 
The US Federal Reserve Building in Washington DC – Photo: Shutterstock
                                

The US Federal Reserve has announced plans to scale back its asset purchases and taper its $120bn monthly bond purchases in a bid to reduce its money printing programme. 

"Inflation is elevated, largely reflecting factors that are expected to be transitory. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses," it confirmed in a statement. 

The US central bank did not change interest rates which remain around 0%.

The Fed also announced plans to reduce its Treasury security purchases by $10bn from $80bn to $70bn a month, as well as decreasing its mortgage-backed securities by $5bn each month.

“In light of the substantial further progress the economy has made toward the Committee's goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities,” it confirmed.

Steady markets

The move was first signalled by Fed Chairman Jerome Powell back in September in a bid reduce the amount of asset purchases – a form of newly created money also known as quantitative easing (QE) – in a bid to support the US economy, employment rates, inflation and price stability. 

According to data published by the central bank, the monthly bond purchases have added more than $4trn to the Fed’s balance sheet, which has inadvertently kept interest rates stable and helped businesses in markets that were affected by the global pandemic stay afloat. 

“Beginning later this month, the Committee will increase its holdings of Treasury securities by at least $70bn per month and of agency mortgage‑backed securities by at least $35bn per month,” it confirmed. 

“Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60bn per month and of agency mortgage-backed securities by at least $30bn per month.”

While these announcements usually lead to an influx of market changes, it's interesting to see that the crypto market has remained relatively steady. Bitcoin was relatively unchanged as it held above $60,000, while Ethereum rose to a new all-time high early on Wednesday morning, hitting the $4,600 threshold.

Further reading: US Treasury yields rise to four-month high

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