When might the Fed slow its monthly bond purchases?

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The Federal Reserve is unlikely to slow its monthly bond purchases in the immediate future.

Federal Reserve Chair Jerome Powell has indicated that any reduction in the central bank's support for the economy, beginning with a slowdown of its US$120 billion in monthly bond purchases, is "still a ways off." The Fed has consistently stated that it will not taper its bond-buying program unless there is "substantial further progress" in restoring the approximately 7.5 million jobs lost since the beginning of the pandemic in March 2020. Policymakers anticipate that this employment threshold will likely be met later this year.
Progress in the Labour Market Remains a Key Condition

The Federal Reserve's decision to slow its bond purchases is contingent upon significant advancements in the labour market. As of the prepared remarks, millions of individuals, particularly those in lower-wage, Black, or Hispanic communities disproportionately affected by the recession, still need to return to the workforce. Powell emphasized that there remains a considerable distance to cover in achieving full employment.
Inflationary Pressures are Viewed as Transitory

While acknowledging that the pace of price increases is expected to remain elevated in the coming months, Powell characterized these inflationary pressures as temporary. He indicated that long-term inflation expectations are still aligned with the Fed's 2 per cent target, suggesting no immediate need to alter the approach to post-pandemic monetary policy. The market's reaction to Powell's testimony, with US Treasury yields falling, indicated an interpretation that the Fed intended to maintain its supportive monetary stance.
Economic Outlook Faces Uncertainties

The economic recovery is subject to various factors, including the continued improvement in public health conditions and the reopening of the economy. However, the emergence of new coronavirus variants, such as the Delta variant, introduces a degree of uncertainty. Policymakers are monitoring the potential impact of these developments on consumer and business spending, which could influence the timing of any shifts in monetary policy. The Fed's previous statements have suggested that as extraordinary reopening circumstances subside, supply and demand should better align, leading to a moderation in inflation.

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When might the Fed slow its monthly bond purchases?

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