The Fed will begin to cut its monthly bonds purchases and affirm that inflation in the US will be "transitory."

The%20Fed%20will%20begin%20to%20cut%20its%20monthly%20bonds%20purchases%20and%20affirm%20that%20inflation%20in%20the%20US%20will%20be%20%22transitory.%22
source: wsj.com

The agency maintained its ultra-low interest rates in a range of 0 to 0.25% at the end of its monetary policy meeting that began on Tuesday.

The Federal Reserve (Fed, the central bank of the United States) announced this Wednesday that it will begin to cut its monthly bond purchases in November with plans to finish them in 2022. Still, it maintained its opinion that high inflation will be "transitory" and probably will not require of a rapid rise in interest rates.

However, the central bank noted that global supply difficulties were adding to inflation risks, saying that those factors "are expected to be transitory" but would have to decrease for the expected drop in prices to occur.

"In light of the substantial further advance of the economy," the US central bank said it would begin cutting its bond purchases, as widely expected, marking a formal policy change launched in March 2020 to fight against the strong recession and mass layoffs caused by the COVID-19 pandemic.

Yet even by announcing a $ 15 billion monthly cut in its monthly purchases of Treasuries and mortgage-backed securities, it did little to signal when the "normalization" phase of monetary policy could begin by raising interest rates. 

"Economic activity and employment have continued to strengthen," announced the Federal Open Market Committee at the end of its last two-day meeting. Still, it did not change its intention to leave interest rates in a range of 0 to 0.25%. until inflation has reached 2% and is "on track to moderately exceed 2% for some time."

Overall, the Fed said it continued to believe that recent high inflation would decline. Still, the small wording change indicated that Fed officials see the process taking longer.

Inflation by the Fed's preferred measure, the personal consumption expenditure price index, has reached twice the target rate since May. Still, officials are reluctant to change their outlook on monetary policy until it is clear that the pace of price increases will not slow down by itself.

Fed Chairman Jerome Powell is scheduled to hold a press conference at 18:30 GMT to give more details on the latest statement.