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Central bank on track to slow aid in 2021

·2-min read

The US Federal Reserve will start dialing back its ultra-low-rate policies this year as long as hiring continues to improve, Chair Jerome Powell has said, signaling the beginning of the end of the Fed's extraordinary response to the pandemic recession.

The Fed's move could lead, over time, to somewhat higher borrowing costs for mortgages, credit cards and business loans.

The Fed has been buying $US120 billion ($A164 billion) a month in mortgage and Treasury bonds to try to hold down longer-term loan rates to spur borrowing and spending.

Powell's comments on Friday indicate the Fed will likely announce a reduction - or "tapering" - of those purchases sometime in the final three months of this year.

In a speech given virtually to an annual gathering of central bankers and academics, Powell stressed that the beginning of tapering does not signal any plan to start raising the Fed's benchmark short-term rate, which it has kept near zero since the pandemic tore through the economy in March 2020.

Rate hikes won't likely start until the Fed has finished tapering its bond purchases.

But Powell said inflation has risen enough to meet its test of "substantial further progress" toward the Fed's goal of 2 per cent annual inflation over time, which was necessary to begin tapering.

There has also been "clear progress," he said, toward the Fed's goal of maximum employment.

At the same time, the Fed chair said the central bank is monitoring the economic impact of the highly contagious delta variant, which has caused a sharp spike in COVID-19 cases in the United States, especially in the south and west.

"While the delta variant presents a near-term risk, the prospects are good for continued progress toward maximum employment," Powell said. He spoke via webcast to the Jackson Hole Economic Symposium, which is being held virtually for a second straight year because of COVID-19.

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