U.S. Fed expected to announce tapering asset purchases amid persistent inflationary pressures

Photo taken on Dec. 2, 2020 shows the U.S. Federal Reserve in Washington, D.C., the United States. (Xinhua/Liu Jie)

The Federal Open Market Committee (FOMC), the Fed's policy-making committee, is expected to vote unanimously during its meeting that started on Tuesday to taper the central bank's monthly asset purchases of 120 billion U.S. dollars, said economist Diane Swonk.

WASHINGTON, Nov. 2 (Xinhua) -- The U.S. Federal Reserve is expected to announce this week that the central bank will start tapering its asset purchase program amid great concerns over persistent inflationary pressures, economists have said.

The Federal Open Market Committee (FOMC), the Fed's policy-making committee, is expected to vote unanimously during the two-day policy meeting that started on Tuesday to taper the central bank's monthly asset purchases of 120 billion U.S. dollars, said Diane Swonk, chief economist at major accounting firm Grant Thornton.

"The committee hopes to end the tapering of its asset purchases by mid-2022. It may have to accelerate that timeline if inflation doesn't moderate fast enough," Swonk said Sunday in an analysis, adding the FOMC will have to address the thorny issue of inflation in its statement on policy.

In the 12 months through September, the core personal consumption expenditure (PCE) price index, the Fed's preferred inflation measure, rose 3.6 percent for a fourth straight month, remaining at the highest level since May 1991, according to the Commerce Department.

Swonk expected the core PCE price index to peak above 4 percent by the end of this year and slow to 3.5 percent by mid-2022, still above the central bank's inflation target of 2 percent.

Meanwhile, the U.S. unemployment rate is expected to fall below 4 percent in the first half of 2022 from 4.8 percent in September, according to Swonk.

"Those shifts would prompt more rapid tapering and faster rate hikes than the Federal Reserve laid out in its September forecasts," she said.

U.S. Federal Reserve Chairman Jerome Powell testifies at a hearing before the Senate Banking Committee in Washington, D.C., the United States, Sept. 28, 2021. (Kevin Dietsch/Pool via Xinhua)

Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP, expected Fed Chairman Jerome Powell to use his press conference on Wednesday to reiterate that tapering is not tightening.

"Away from the tapering discussion, the Fed will keep its policy rate in a range between zero and 25 basis points and not make any changes to interest paid on excess reserves," Brusuelas said.

While the market has already moved aggressively to price in two full rate hikes by the end of next year, "our call is that the first rate hike will not occur until March 2023", he said.

The Fed has pledged to keep its benchmark interest rate unchanged at the record-low level of near zero since the start of the COVID-19 pandemic.

Jay H. Bryson, chief economist at Wells Fargo Securities, believed that Powell is likely to pair the tapering announcement with another firm reminder that the bar for increasing short-term interest rates is much higher.

"At August's rate of job growth it would take a little more than two years to recoup 100% of the jobs lost during the pandemic, and even then the economy would still be several million jobs short of its pre-pandemic trend," Bryson said.

"In our view, this employment gap, paired with our projected slowdown in inflation, will keep the Fed from raising rates until 2023," Bryson added.

A Bloomberg survey released on Tuesday showed that a majority of the 49 economists predicted the U.S. central bank will begin tapering in November and wrap it up by mid-2022.

However, economists are closely divided on whether interest-rate liftoff will be in 2022 or early 2023, with a slim majority estimating the latter timing, according to the survey.