The Federal Reserve made official on Wednesday its plan to wind down the aggressive monthly bond-buying program that has defined the central bank's pandemic response. 

The Fed currently purchases $80 billion in U.S. Treasuries and $40 billion in agency-backed mortgage securities for a total of $120 billion per month. The plan is to reduce that amount by $15 billion "later this month" and each month after, putting the Fed on track to completely end the emergency program by the middle of next year.

The Federal Open Market Committee (FOMC), which executes the bond purchases, announced the plan in its post-meeting statement. 

"In light of the substantial further progress the economy has made toward the Committee's goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities," said the statement. 

The Fed did make clear that it was open to making adjustments as needed. 

"We are prepared to speed up or slow down the pace of reductions in asset purchases if it's warranted by changes in the economic outlook," said Fed Chair Jerome Powell in his speech after the meeting. "We wouldn't want to surprise markets." 

Powell and other Fed officials have signaled for months that a taper was on the horizon — so markets showed little surprise in the wake of the announcement — but many Fed-watchers were eagerly anticipating further clarification on what the taper meant for the federal funds rate, which has remained near-zero since March 2020.

Fed officials have previously said that any rate hike would come after tapering was finished — which is now set for July 2022 — but beyond that point, the committee remains divided. In September, the 18-member FOMC was split 50-50 on whether or not interest rates will top 1 percent in 2023. 

Powell, for his part, once again made it clear that tapering and rate hikes were not connected.

"Our decision today to begin tapering our asset purchases does not imply any direct signal regarding our interest rate policy," he said. 

That will require a "more stringent test," he added. 

Despite inflation hitting a 30-year high, the Fed also stuck to its description of price increases as "transitory" due to pandemic-related supply constraints.   

"Inflation is elevated, largely reflecting factors that are expected to be transitory," the statement said. "Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors."

Some expected the Fed to temper this language even further by excising "transitory" altogether. Instead, it only hedged slightly, saying factors that are "expected to be transitory" rather than calling them transitory outright. 

"We understand the difficulties that high inflation poses for individuals and families, particularly those with limited means to absorb higher prices for essentials such as food and transportation," Powell said. "Our tools cannot ease supply constraints."  

He added that supply chains would recover but that the timing for that is uncertain.

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