Fed’s Bond-buying Changes

The Federal Reserve has indicated for several months that it plans to reduce its bond-buying initiative. While investors have waited with bated breath for an announcement, there are only rumors, indications, and speculation. Currently, it appears that the Fed is planning to reduce its asset purchases by $15 billion each month until the program ends in the middle of 2022. This latest idea comes from post-meeting notes and remarks from Fed Chairman Jerome Powell. The Fed’s policy meeting will close on Wednesday, but there is no guarantee that the board will start backing off bond-buying when the meeting ends. IT seems the Fed is planning what Philadelphia Fed President Patrick Jarker has called a “boring” exit from the bond initiative. This stands in stark contrast to the aggressive and sudden nature of the Fed’s pandemic policies that rolled out in March of 2020. As of late October, the Fed’s ledger showed $8.6 trillion in bought assets. At the pace analysts believe tapering will occur, the program will end with about $9 trillion in assets—twice what it held before the pandemic. What’s the next step? The Fed needs to raise interest rates to curb inflation and return to normalcy. Currently, the Federal Reserve Board is split on how and when to raise interest rates.