Federal Reserve officials signaled they are moving closer to when they can start reducing massive support for the U.S. economy, though Chair Jerome Powell said there was still some way to go.
“We’re not there. And we see ourselves as having some ground to cover to get there,” he told a press conference Wednesday after the Federal Open Market Committee held interest rates in a range near zero and maintained asset purchases at $120 billion a month until “substantial further progress” was made on employment and inflation.
“The economy has made progress toward these goals, and the committee will continue to assess progress in coming meetings,” the Federal Open Market Committee said in its policy statement. The FOMC vote was unanimous.
Powell said officials had taken their “first deep dive” during their two-day meeting on how to go about scaling back bond buying when the time came, but no decision on taper timing had been made.
“We’re making progress. We expect further progress and if things go well we will reach that goal,” he said.
Stocks pared losses, the dollar lost ground and 10-year Treasury yields advanced.
“The Fed is starting the clock on tapering. It is not happening now or even in September, but expect the pace of asset buying to slowdown late this year or early next,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research.
The FOMC repeated language that inflation had risen, “largely reflecting transitory factors,” and that risks to the economic outlook remain.
“The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered,” the statement said.
Consumer prices are rising at the fastest pace since 2008 as the economy reopens and Americans renew spending after a year of lockdown. At the same time, the spreading delta variant has jolted investors who worry it could threaten the economic recovery.
”As long as Covid is running loose out there, as long as there is time and space for the development of new strains, no one is finally safe,” Powell said.
Fed officials held their benchmark interest rate in a zero to 0.25% range and Powell said “we’re clearly a ways away” from liftoff. Fed forecasts published last month showed rates on hold through next year. The quarterly projections will be updated in September.