Powell tells Fed that it's likely to pullback

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Powell tells Fed that it's likely to pullback

Federal Reserve Chairman Jerome Powell told the Fed on Wednesday that it would start a pullback in the central bank's unusual stimulus for the crisis-era monetary policy, saying that it could wrap up its asset purchases program by 2022.

Participants generally said that as long as the economic recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate, Powell told reporters on Wednesday.

Earlier in the afternoon, the policy-setting Federal Open Market Committee said the U.S. economy recovery was performing well enough to allow the Fed to quickly slow its purchases of U.S. Treasuries and agency mortgage-backed securities that it's buying at an aggregate pace of about $120 billion per month If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted, the FOMC statement reads.

The Fed s clinch towards a taper announcement suggests that the central bank could actually announce something to as soon as its next meeting in early November.

The central bank announced it would not taper until the economy looked like it had made substantial further progress towards the Fed s dual mandate goals of maximum employment and stable prices.

Powell said inflation well over the Fed s 2% target has achieved that progress, but said labor market recovery had not. An August job report showed 235,000 job gains, short of the estimated over 700,000 payroll gains by Wall Street for that month.

The test of substantial further employment progress is all but met, Powell said.

The Fed continued optimistic about the economy, with a majority of the FOMC members now advocating for at least one rate hike next year. The other half saw the Fed holding down near-zero rates through 2022.

However, the FOMC acknowledged some downside risks, with the Delta variant continuing to drag on sectors most adversely hit by the pandemic.

Powell swatted down concerns over other risks like the spillover effect of Evergrande, a Chinese business empire that was on the verge of collapsing under the weight of its own debt. The Fed chief said the issue appears very particular to China for now.

It's something they're managing, Powell said. In terms of the potential implications for us, there is not a lot of direct U.S. exposure to our country. Powell also acknowledged the risk associated with the debt ceiling. The U.S. Treasury Department is burning its cash balances to pay its bills while Congress works on raising the debt ceiling, but Treasury Secretary Janet Yellen warned of widespread economic catastrophe if its balances ran dry

The Fed chief urged Congress to raise the debt ceiling in a timely manner, adding that defaulting on the national debt would cause severe damage to the economy and financial markets.

Powell is scheduled to testify on Capitol Hill next week as part of the follow-up on Fed s pandemic response, first on September 28 and then again on sept. 30.

Brian Cheung is a reporter covering the Fed, economics and banking for Yahoo Finance. You can follow him on Twitter on bcheungz.