Tapering, inflation and Covid cases what to expect from the fed?

Tapering could begin by the end of the year. Federal Reserve Chairman Jerome Powell, in his speech at the Jackson Hole symposium, did not disappoint analysts’ expectations, providing some indications on the reduction in purchases of securities and mortgages, now equal to 120 million dollars a month.

In his speech at the meeting of central bankers in Jackson Hole, in fact, the Fed chairman remains vague about the exact timing of the tapering (September or November?), which is expected within the year, while for now the rates will remain unchanged - “The Delta variant creates short-term risks but the prospects for the US economy are good”. Thus, no precise date. “We said we would continue asset purchases at current speed until further substantial progress towards the goals of maximum employment and price stability. I believe that such progress has been made for inflation. There is also clear progress towards maximum employment. If the economy evolves as expected, it will be appropriate to start reducing the speed of asset purchases this year”, Powell said, noting however that tapering “is not a direct signal of a near increase in interest rates.” What is tapering? And why are we hearing about it so much?

The term tapering indicates the slowdown by the central bank in the rate of purchase of assets (mainly government bonds) on the secondary market. Tapering is therefore the monetary policy that is adapted to slow down an expansionary policy (also called quantitative easing), until it is completely concluded. In other words, with quantitative easing central banks adopt expansive monetary policies that result in the purchase of government bonds on the secondary market, the purpose of which is to support the prices of the securities and, at the same time, inject new liquidity into the economic and financial system.

When central banks decide that the time has come to stop the stimulus then, they define a program of gradual reduction of purchases until it stops altogether. This restrictive monetary policy program is called tapering.