The U.S. Federal Reserve on Wednesday signaled that a decision is nearing on beginning to scale back a massive bond-buying program on the back of the recovery from the coronavirus pandemic, and hinted at an interest rate lift-off possibly next year.
After a two-day meeting of the policy-setting Federal Open Market Committee, the central bank said it will maintain its target range for the federal funds rate at 0 to 0.25 percent and will continue buying a total of $120 billion in Treasuries and mortgage securities each month.
But the Fed said in a statement that it "judges that a moderation in the pace of asset purchases may soon be warranted" if the economy continues to show progress toward the bank's goals of achieving maximum employment and inflation averaging 2 percent over time.
The near-zero interest rate policy and so-called quantitative easing measures were introduced in March last year as the pandemic intensified in the United States. The Fed has pledged to continue asset purchases at the current pace until "substantial further progress" has been made toward the two goals.
Fed Chairman Jerome Powell said "substantial further progress" has already been achieved for inflation but questions remain with regard to employment.
The decision on whether the two tests have been met "could come as soon as the next meeting," he told a press conference, referring to the next two-day gathering from Nov. 2.
On the pace of reducing the asset purchases, Powell said the general view is that "a gradual tapering process that concludes around the middle of next year is likely to be appropriate" as long as the recovery remains on track.
Meanwhile, the latest summary of economic projections showed that half of the 18 Fed policymakers are now anticipating rate hikes in 2022, compared with seven in June. Only one foresaw the rate to remain unchanged at near-zero through 2023.
The Fed forecast the U.S. gross domestic product to grow a real 5.9 percent in the fourth quarter of 2021 from a year earlier, revised downward from the 7.0 percent expansion estimated in June.
The unemployment rate was projected to be 4.8 percent in 2021, up 0.3 percentage point from the previous forecast, and 3.8 percent in 2022. The pace of price increases was expected to rise to 4.2 percent this year, up from the June forecast of 3.4 percent.
On concerns over a potential default by major Chinese property developer Evergrande Group, an issue that has been rattling global financial markets recently, Powell said the situation seems "very particular" to China, which has a very high debt for an emerging market economy.
"In terms of the implications for us, there's not a lot of direct U.S. exposure. The big Chinese banks are not tremendously exposed, but you would worry that it would affect global financial conditions through confidence channels and that kind of thing," he added.