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Updated: 16:18 13/08/22

US Fed cuts bond-buying, plans for rate rises

By Liam Sheasby, News Editor

16 Dec 2021


Jerome Powell, chairman of the US Federal Reserve, speaking this week.
Photo courtesy of the Federal Reserve Flickr account.

America's central bank, the Federal Reserve, has announced that it will be ending its bond-buying stimulus programme sooner than originally intended.

The move has been announced in light of the rapidly rising inflation rate in the United States – currently at 6.8% following the quickest inflation rise since the Reagan tenure in the White House.

The Fed has already reduced $15 billion per month of asset purchases and will now reduce the rate by a further $30 billion per month; a $20 billion reduction in Treasury securities and $10 billion of agency mortgage-backed securities. This tales the original $120 billion per month down to just $75 billion and ending the programme in March 2022.

With the programme out of the way, the next move for the Fed will be – like the Bank of England announced today – to raise interest rates. It's not too surprising to see very similar behaviour between the US, UK and EU on banking matters, and the Fed Res is expected to raise interest rates by a quarter of a percent (25 basis points) at three points next year.

Gold – a traditional hedge against inflation – is up 1.73% today following this week's inflation figures from America and Britain. Gold is $1,798.12 per ounce having gained $30.60 in the past 24 hours, and is up 1.18% for the week, though still down for the month so far.

In a press release, the Federal Open Market Committee (FOMC) said: “With inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment.”

Forecasts suggest inflation will fall off next year, but the US is predicting 2.6% rather than the 2.2% suggested back in September – a similar worsening situation to the UK which is expecting 6% in April rather than 5%.

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