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1 1 (January 27, 2022)

handle is hein.crs/govefem0001 and id is 1 raw text is: Congressional SResearch Service informing the Iegislative debate since 1914___________________ Federal Reserve: Tapering of Asset Purchases Updated January 27, 2022 In November 2021, the Federal Reserve (Fed) announced that it would begin to taper its large-scale asset purchases, popularly known as quantitative easing (QE), by $15 billion per month (see Table 1). In light of the further increase in inflation, it announced in December that it would double the monthly reduction in purchases in January. In January 2022, the Fed announced that purchases would end in March, at which point its balance sheet will stop growing. Under tapering, the Fed will continue to purchase Treasury securities and agency mortgage-backed securities in a two-to-one ratio. Table I. Fed Monthly Asset Purchases (billions) 2021-2022 Amount Decline from Previous Month Before Tapering $120 n/a After November Tapering Announcement: November $105 $15 December $90 $15 After December Tapering Announcement January $60 $30 February $30 $30 March $0 $30 Source: CRS. Tapering is the first step in the eventual normalization of monetary policy from the highly stimulative policies in response to COVID-19, which included asset purchases. Tapering itself withdraws some stimulus, and its pace determined when the Fed will begin raising interest rates. The Fed could have raised the federal funds rate at any time but will wait until tapering has ended, consistent with past practices. In January, the Fed announced it will soon be appropriate to raise rates. The Fed also stated that it would begin to reduce the size of the balance sheet sometime after the federal funds rate had been increased, primarily by not replacing maturing securities. Congressional Research Service https://crsreports. congress.gov IN11792 CRS INSIGHT Prepared for Members and Committees of Congress -

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