Federal Reserve Chairman Jerome Powell announced at a press briefing today that the Fed will begin the tapering of mortgage-backed securities, including bonds. The Fed plans to slow the pace of asset purchases by $15 billion monthly ($5 billion from mortgage-backed securities), with the possibility of increasing or decreasing that amount depending on the economic recovery. However, Chairman Powell declined to say what factors would warrant changing the pace of tapering.
"With COVID case counts receding further, and progress on vaccinations, economic growth should pick up this quarter, resulting in strong growth for the year as a whole," Chairman Powell said.
Experts expect this move to increase, since the Fed was buying these securities at low rates, keeping mortgage rates at historic lows. Given today's news, it's quite possible that rates will continue to inch up, increasing the .
As the Fed begins reducing the pace of its $120 billion in monthly purchases of Treasury bonds and mortgage-backed securities, it will not increase interest rates yet. Pandemic-related supply and demand imbalances, supply chain disruptions and the ongoing effects of COVID-19 are the key drivers of higher inflation today, keeping it well above the Fed's 2% inflation goal, according to Chairman Powell.
However, while the Fed will keep interest prices near 0% in light of this, Chairman Powell said it won't use its tools to preserve price stability just yet.
"We are committed to our longer-run goal of 2% inflation and to having longer-term inflation expectations well anchored at this goal," Chairman Powell said. "If we were to see signs that the path of inflation, or longer-term inflation expectations, was moving materially and persistently beyond levels consistent with our goal, we would use our tools to preserve price stability."
Reaffirming what Chairman Powell said at last month's meeting, the Fed's tapering effort should cease around mid-2022 if economic conditions proceed as predicted.