By Tom Burnett CFA
On November 3, 2021, the Federal Reserve announced the results of its two-day meeting for the month. Importantly, the Fed made it clear that it sees the economy recovering sharply from the Covid-19 outbreak, and that inflation is now rising above the 2% annual rate that is the goal of its policy. The Fed will let inflation run higher for some time to get the average up to 2% before taking action to slow down the recovery and reduce its inflationary pressures.
As a result of the strong recovery, the Fed stated that it will begin to reduce its monthly bond purchases from the current level of $120 billion per month. In mid-November, the Fed will reduce the purchases by $15 billion a month until June 2022 when the program will be eliminated. Depending on the economic situation, the policy of reduction may be accelerated or diminished. The Fed statement made it clear that interest rates are not being raised. The rate on fed funds will remain in the range of 0 to 0.25% for an unspecified time going forward.
The decisions announced today were voted unanimously by the Fed Governors.
Interest rates rose slightly after the Fed statement as the 10-year Treasury bond yield moved up from 1.56% to 1.58%.
The next Fed policy statement will be announced after the December 14-15 meetings.
Tom Burnett CFA is Director of Research