The Federal Reserve has announced that it intends to begin paring back its bond purchases in a process known as tapering. The long-anticipated decision was arrived at during the Federal Open Market Committee (FOMC) meeting on Nov. 2-3. The taper news should hardly come as a surprise to market participants. This decision has been months in the making and comes at a time when inflation has risen much higher for much longer than Fed officials estimated earlier in 2021. Meanwhile, the labor market is convalescing in fits and starts, but it still remains weaker than before the Covid-19 pandemic. Millions fewer Americans are employed today than before the pandemic, and inflation-adjusted wages remain in the red. However, don’t expect today’s announcement to upset market participants, however, who’ve had months to get used to the idea of diminishing quantitative easing (QE). Now that the question of when to taper has been answered, observers can start asking what the taper means for future Fed interest rate hikes.
Source: Board of Governors of the Federal Reserve System