Fed might reduce asset purchases this year – Powell

The Federal Reserve might soon begin tapering its asset purchases as employment numbers continue to improve, but evolving risks, such as the spread of the delta variant of the coronavirus, could play a factor in the timing, Chairman Jerome Powell said Friday.

At the Federal Open Market Committee's July meeting, "I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year," Mr. Powell said during a speech at the at the Fed's annual Jackson Hole, Wyo., policy forum. "The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the delta variant. We will be carefully assessing incoming data and the evolving risks."

For now, the Fed will continue its bond purchases — currently $120 billion a month split between $80 billion in Treasury securities and $40 billion of mortgage-backed debt — Mr. Powell said.

He noted that the "timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff." The Fed has kept its key interest rate near zero since the early days of the COVID-19 pandemic.

On inflation, Mr. Powell said the recent spike has so far largely been the product of a relatively narrow group of goods and services that have been directly affected by the pandemic and the reopening of the economy.

And although the Fed is ready to "use our tools to assure that inflation runs at levels that are consistent with our goal," Mr. Powell said the central bank's current monetary policy is appropriate.

"Incoming data should provide more evidence that some of the supply-demand imbalances are improving, and more evidence of a continued moderation in inflation, particularly in goods and services prices that have been most affected by the pandemic," he said. "We also expect to see continued strong job creation. And we will be learning more about the delta variant's effects. For now, I believe that policy is well positioned. As always, we are prepared to adjust policy as appropriate to achieve our goals."