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Fed to start tapering bond purchases later this month as it begins pulling back on pandemic aid

The Federal Reserve announced Wednesday it soon will begin reducing the pace of its monthly bond purchases, the first step toward pulling back on the massive amount of help it had been providing markets and the economy.

Tapering of bond purchases will start “later this month,” the policymaking Federal Open Market Committee said in its post-meeting statement. The process will see reductions of $15 billion each month -- $10 billion in Treasurys and $5 billion in mortgage-backed securities – from the current $120 billion a month that the Fed is buying.

The committee said the move came “in light of the substantial further progress the economy has made toward the Committee’s goals since last December.”

The statement, approved unanimously, stressed that the Fed is not on a preset course and will make adjustments to the process if necessary.

Fed Chairman Jerome Powell said he expects inflation to keep rising as supply issues continue and then start to pull back around the middle of 2022.

“Our baseline expectation is that supply chain bottlenecks and shortages will persist well into next year and elevated inflation as well,” he said. “As the pandemic supplies, supply chain bottlenecks will abate and growth will move up and as that happens inflation will decline from today’s elevated levels.”

The statement also noted that the economy is expected to continue improving, particularly after the supply chain issues are resolved.

“Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation,” the committee said.

The FOMC voted not to raise interest rates from their anchor near zero, a move also expected by the market.

On the current schedule, the reduction in bond purchases will conclude around July 2022. Officials have said they don’t envision rate hikes beginning until tapering is finished, and projections released in September indicate one increase at most coming next year.