The Federal Reserve will start easing its vast support for financial markets this month, marking a highly anticipated policy change as central bank leaders grapple with major price increases in some parts of the economy but plenty of room to grow in the labor market. The Fed’s announcement, made after its two-day policy meeting Wednesday, comes as the economy continues to shift more than 18 months after the pandemic first hammered U.S. labor and financial markets. The S&P 500 and other stock indexes closed at record highs Wednesday amid fresh optimism about the economy’s direction, but other concerns persist, including inflation, supply chain issues and a disconnect between many unfilled jobs and unemployed workers. The coronavirus’s delta variant appears to be finally easing, leading to a pickup in hiring. But inflation concerns that the Fed has long labeled as “transitory,” or temporary, haven’t yet receded. Fed leaders Wednesday pointed to the persistence of “sizable price increases in some sectors,” and Chair Jerome H. Powell said at a news conference that inflation and related supply chain issues “will persist well into next year.” The Fed had provided extraordinary support to the economy since the height of the pandemic to help money flow through the economy, limit bankruptcies and try to stopgap the wave of layoffs that washed across the United States last year. For months, the Fed had set the stage to start winding down this sprawling bond-buying program — which includes $120 billion a month in asset purchases — in November. Those purchases have helped stimulate the economy and made borrowing easier by holding down long-term rates, and the expectation was that the purchases will be fully drawn down before the Fed raises interest rates. On Wednesday, the Fed announced it would be cutting purchases by $15 billion each month. That decision reflected optimism within the Fed that the economy is on the right track. But tremendous uncertainty still hangs over the economy, especially when it comes to how long prices will keep rising faster than wages, a phenomenon many Washington policy makers did not expect to last so long. Following the Fed’s policy meeting, officials released a statement saying that the mismatch of supply and demand, plus the reopening of the economy, has contributed to high prices.
Powell said he didn’t expect that inflation will have a permanent imprint on the economy, and added that the central bank will use its tools “to make sure that doesn’t become a permanent feature of life,” especially for households most sensitive to higher prices for groceries, rent, gas and more.
Now that the Fed has started its long-awaited “taper,” the markets are hungry for signals about when the central bank will raise interest rates for the first time since the pandemic. But Powell emphasized patience, arguing that the Fed would wait to cool the economy down until as many people as possible have gotten back into jobs. He said that it is “certainly within the realm of possibility” that the economy could reach full employment by the second half of next year. But reflecting on the recent surge of the delta variant, which had a harsher toll on the economy than the Fed expected, Powell reiterated that “we have to be humble about what we know about this economy.” “There’s still ground to cover to get to maximum employment, and we don’t want to stop that when there’s good reason to think — although it’s been delayed — that the economy will reopen if we do get past significant outbreaks of covid,” Powell said. NN: Stock market indices closed at new record highs. Celebrating the start of their destruction….. Their was nothing good in what the FED reserve announced……. In essence Quantum Easing is over…. And it will be sooner they the markets think. Although the Fed refused to fess up publicly to the reality. They have no choice, begging for mercy along the way, they will Will WILL raise interest rates 300 to 500 bases points. And when the markets gets a sniff of this it will devastating…