The Federal Reserve concluded its two-day policy meeting on Wednesday by announcing plans to steadily taper off its $120 billion bond-buying program, a move widely expected by economists as the central bank begins to pull back on its pandemic-era stimulus to support the economy.
The Federal Reserve said it would start scaling back its bond-buying stimulus program later this month and end it by June 2022.
The decision marks the Fed’s first step towards reducing the historic level of support it had been providing markets and the U.S. economy.
The central bank said it would begin reducing its bond purchases by $15 billion each month—with $10 billion in Treasuries and $5 billion in mortgage-backed securities—but that it is also prepared to adjust the pace of purchases based on any changes to the economic outlook.
Fed officials said in a statement that they still anticipate inflation levels to eventually fall, with the current high reading due to “transitory” factors.
The stock market was relatively flat ahead of the Fed meeting, with the Dow down 100 points—but major indexes all pared back losses somewhat after the announcement.
Going into the Fed meeting, the two issues weighing most heavily on the minds of investors were inflation and interest rate hikes. Inflation fears have especially spiked over the past few weeks, with the market already pricing in several rate hikes for early 2022. Third-quarter corporate earnings have so far proved resilient despite investor concerns about rising costs, labor shortages and inflation, however: Of the 362 companies in the S&P 500 that have reported so far, 81% have beaten expectations according to data from Refinitiv. Solid earnings have also helped boost stocks to record highs recently, with the S&P 500 rising over 5% in October for its best month so far this year.
“Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors,” according to the Fed’s statement.