November 8, 2021 — Fed Announces Tapering of Asset Purchases as Data Improves


At their meeting last week, the Fed’s policymakers announced changes to monetary policy starting later this month.  They will reduce bond purchases by $15 billion/month, $10 billion in treasuries and $5 billion in mortgage-backed securities. The move came “in light of substantial further progress the economy has made toward the Committee’s goals since last December.” This was not a surprise as increased expectations for inflation are forcing the Fed to act sooner and faster than projected. Recently, short term rates have risen and the yield curve has flattened.

In other good news, the number of Americans filing new claims for unemployment fell to 269,000, seasonally adjusted, the lowest level since March 2020.  Claims have now declined for 5 straight weeks.  October’s unemployment rate was 4.6 percent, a pandemic low, as the economy added a huge 531,000 new jobs, this after only 194,000 new jobs were added in September. Wages were up in October 0.4 percent for the month and 4.9 percent from a year ago.

Despite all this encouraging news, the Fed only slightly altered their view on inflation, agreeing price increases have been faster and more enduring than expected, though they are still saying it is “transitory.” Fed Chair Powell stressed there must be more improvement before they raise rates.

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