U.S. Federal Reserve Expected To Signal Plans To Taper Bond Purchases

The U.S. Federal Reserve is expected to clear the way for reductions to its monthly bond purchases later this year in its latest policy statement to be issued today (September 22).

Central bank policymakers, who are wrapping up their latest two-day meeting, have been handed a conflicting set of developments since late July - signs of a slowdown in the service sector, a COVID-19 resurgence that has eclipsed that of last summer, and weak job growth in August, all alongside still strong inflation.

Fed officials have said the economic recovery will continue and allow the U.S. central bank to proceed with plans to reduce its $120 billion U.S. in monthly purchases of U.S. Treasuries and mortgage-backed securities by the end of 2021, and wind them down fully over the first half of next year.

But outside analysts expect the American central bank to hedge on exactly when the "taper" might begin, and tie it to a rebound in job growth following the disconcertingly tepid report in August, when only 235,000 jobs were created.

The Fed is due to release its latest policy statement and economic projections at 2 p.m. Eastern time with Federal Reserve Chair Jerome Powell holding a news conference half an hour later to discuss the outcome.

The U.S. job market remains about 5.3 million positions short of where it was before the pandemic. Financial markets have been roiled in the last week by concerns about spillover effects from the potential collapse of a large Chinese property developer, China Evergrande Group, and the S&P 500 index started the week with its largest daily loss in four months.

More then 60% of economists polled by Reuters News Agency said they expect the tapering of the bond purchases to begin this December.