Status: 03.11.2021 7:44 p.m.
The US Federal Reserve will begin to exit its crisis mode later this month. The Federal Reserve wants to gradually reduce the billion dollar bond purchases. But when will interest rates rise?
The US Federal Reserve (Fed) plans to begin shutting down its massive bond-buying program later this month. She currently buys government bonds and mortgage-backed securities for $ 120 billion a month. The Fed now wants to reduce the purchase of US government bonds by 10 billion dollars per month, as the Federal Open Market Committee announced after a two-day meeting. Mortgage purchases are slated to cut $ 5 billion a month.
The curtailment of purchases from mid-November means that the program would be completely over in June 2022. According to the Federal Reserve, bond purchases are to be further reduced in early December. The central bank reserves the right to make changes to its plan. In a press release, the Fed cited “substantial further progress” towards achieving full employment and an inflation rate averaging 2 percent.
Strong growth expected
In view of the ongoing economic recovery in the USA after the Corona slump, the Federal Reserve is heralding a normalization of its monetary policy. Because the purchases have pushed their balance sheet to a record $ 8.5 trillion. Fed Chairman Jerome Powell had already signaled in the summer that he wanted to scale back the measures decided on because of the pandemic as soon as the economy recovered from the consequences.
The United States expects growth of over six percent this year. However, the central bank has always taken care not to worry the securities markets, which have been used to the glut of money for years, and to proceed cautiously when exiting the crisis mode. Because the securities purchases and the zero interest rate policy have ensured a sharp rise in assets and pushed the stock markets to ever new heights.
First rate hike at the end of 2022?
However, according to industry observers, the throttling of bond purchases – also known as tapering in technical jargon – is only a first step towards normalizing monetary policy. The second would be to raise key interest rates. Investors are therefore eagerly awaiting the signals that Federal Reserve Chairman Powell is sending about possible interest rate hikes.
Christine Lagarde, President of the European Central Bank (ECB), has described an interest rate hike in the euro zone in the coming year as very unlikely. In the USA, for example, Deutsche Bank expects the Fed’s first interest rate hike in December 2022. Economists at other financial institutions are more cautious and do not forecast such a move until the beginning of 2023.
The continued economic recovery – and developments in the US labor market – are considered to be decisive for interest rate policy. It developed surprisingly dynamically in October. The bottom line was that the private sector created 571,000 new jobs, according to the latest survey by recruitment agency ADP.