Federal Reserve Chair Jerome Powell will give hints about where the central bank stands on tapering and the US economic recovery when he speaks following the policy setting committee's two-day meeting

Washington (AFP) - The Federal Reserve’s policy committee began its two-day meeting on Tuesday, amid speculation it could show the first signs of easing up on massive bond purchases that are supporting the US economic recovery.

A year-and-a-half after the central bank slashed its key interest rate to zero and began to buy assets at blistering pace to inject liquidity into financial markets, analysts are watching closely for any hints on when the Fed will begin to pull back on those measures as business returns to normal following the upheaval caused by the pandemic.

A Fed spokesperson said the Federal Open Market Committee (FOMC) began its deliberations, but the latest thinking on the economy’s progress will not be known until Wednesday, when the FOMC releases its policy statement and Fed Chair Jerome Powell speaks to reporters.

No rate hike is anticipated, since the Fed has pledged to keep the benchmark lending rate lower for longer to support the recovery.

But with data showing inflation spiking higher than expected, the FOMC could provide a preliminary signal that it is thinking about tapering its monthly bond purchases, although it may not do so for several months.

The Fed currently is buying at least $80 billion a month in Treasury debt and at least $40 billion in agency mortgage-backed securities.

Central bankers have acknowledged their surprise at the size of the inflation jump – which topped five percent in June by one measure – but continue to say the rate will come down once temporary factors caused by the reopening efforts fade.

The Fed has said it is willing to allow inflation to exceed its two percent target for some time to allow the economy to return to full employment in the wake of the Covid-19 damage.

Powell “will likely reiterate that ‘the standard of substantial further progress … is a ways off,’” Kathy Bostjancic of Oxford Economics predicted.

But he also will indicate that “policymakers advanced their discussion on the timing, composition and size of prospective… tapering,” she said in an analysis.

Powell has promised to communicate clearly in advance of any policy shift, and analysts believe he may wait until the annual central banking conference in Jackson Hole, Wyoming scheduled for late August to make any major announcements.