FED’S POWELL SAYS BALANCE SHEET DRAWDOWN TAPER COMING SOON

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FED’S POWELL SAYS BALANCE SHEET DRAWDOWN TAPER COMING SOON – Fed began an aggressive tightening cycle two years ago

U.S. Federal Reserve Chairman Jerome Powell said that the day is fast approaching when the central bank will slow the pace of its balance sheet unwinding, and in moving towards a taper, it may ultimately allow the central bank to unload more bonds than it once expected.

Officials have aggressively expanded the central bank’s balance sheet as part of the response to the coronavirus pandemic. Beginning in the spring of 2020, the Fed bought large amounts of Treasury and mortgage bonds, first to stabilise financial markets and then to provide stimulus when the Fed’s interest rate target was near zero and could not be lowered any further.

Powell said that recent high inflation readings had not changed the underlying “story” of slowly easing price pressures in the US, but added that recent data had also not boosted the central bank’s confidence that the inflation battle had been won.

The Fed began an aggressive tightening cycle two years ago in response to a surge in inflation that would eventually hit a 40-year high, but has kept its benchmark rate in its current range since last July.

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