Stimulus Update: Fed Taper Could Begin Even if September’s Jobs Report is Not ‘Knock-Out Great,’ Powell Says

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The Federal Reserve hinted that it might put the brakes on its federal stimulus efforts before the end of the year and hike interest rates in 2022, but a lot depends on how upcoming jobs and economic reports pan out.

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In a policy statement released Wednesday, the Fed’s Federal Open Market Committee (FOMC) said that if recent economic progress “continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.”

But the committee also hedged its bets due to continued uncertainty over the COVID-19 pandemic.

“The path of the economy continues to depend on the course of the virus,” the statement said. “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.”

The Fed has no immediate plans to cut federal stimulus programs that have provided needed financial relief to millions of Americans and businesses, but that could change in a hurry if the nation’s economic outlook shows robust improvement. The Fed might start cutting stimulus as soon as November, the Guardian reported, and raise interest rates next year.

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Nobody will know for certain until policymakers see the September jobs report.

“For me it would not take a knock-out great (September) employment report” for the Fed to begin cutting stimulus, Fed Chairman Jerome Powell said in a Wednesday press conference.

The Fed helped lead COVID-19 relief efforts during the early days of the pandemic by cutting interest rates to almost zero and purchasing $120 billion worth of assets — $80 billion in Treasury securities and $40 billion in mortgage-backed securities. But the Fed said it will taper its asset purchases — meaning it will slow its pace of purchases – if certain employment and inflation goals are met.

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As CNN reported on Wednesday, investors expected the Fed to slow its monthly stimulus when the economy began to pick up steam over the summer. That changed, however, with a disappointing August jobs report.

Meanwhile, Wednesday’s Fed announcement seemed to strike a positive note on Wall Street, as the stock markets rallied to end a four-day skid.

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