The Federal Reserve’s plan to slow down and end its asset purchases should not disrupt financial markets, said Fed Chairman Jerome Powell on Wednesday.
“The taper need not be a disruptive event in markets, I don’t expect that it will be. It hasn’t been so far — we telegraphed it,” Powell said during testimony to the House Financial Services panel.
Powell repeated that it was “appropriate” for the Fed to consider to accelerate the pace of tapering at its December meeting so that it wraps up a few months earlier.
which fell sharply after Powell first opened the door for a faster pace of taper on Tuesday, rebounded in the morning session on Wednesday.
At the moment, the Fed is slowing down its asset purchases at a $15 billion per-month pace, which will end the $105 billion of on-going purchases in June.
Economists think the Fed will discuss doubling the pace of the taper to $30 billion per month, which would end the program in March.
Completing asset purchases in the first quarter will give the Fed the flexibility to raise interest rates next year if necessary.
Even after the taper is done, Fed policy will be easy. Indeed, even by standing still, the Fed’s policy has become even easier this year as inflation has risen, economists note.
The Fed cut interest rates to near zero in March 2020 just as the economy was shutting down from the coronavirus pandemic.
The Fed will provide its new forecast for interest rates after its Dec. 14-15 meeting. In September, Fed officials were split evenly over whether interest rates would rise next year.
Overall, the House hearing engendered more heat than light on Fed policy and the economic outlook. Republicans on the committee used their time to blame the sharp rise in inflation this year on the fiscal policy of House Democrats.
For their part, Democrats defended their spending and planned spending as necessary improvements to help working Americans and pointed out that President Donald Trump’s tax cut package wasn’t deficit neutral.