Federal Reserve will soon ease pandemic-era support

The big picture: COVID-19 is still pressuring the economy and labor market. In its first economic projections that reflect the delta variant impact, the Fed downgraded near-term economic expectations.

• It now expects the economy will grow 5.9% this year — a rapid pace, but slower than the 7% estimated in June. (Growth estimates for next year though jumped by 0.5 percentage points).

What's new: The Fed sent its strongest signal yet that it will slow the monthly bond purchases that have supported the economy and buoyed the stock market.

• That's reflected in a statement that's parsed word-by-word by market-watchers. It now says a pullback of those emergency measures "may soon be warranted."

Flashback: For months, the Fed has said it would need to see "substantial further progress" on employment and inflation to dial those purchases back.

• That test has been "all but met," Fed chairman Jerome Powell told reporters on Wednesday, and incoming economic data doesn't have to be out-of-this-world great to confirm that.
• He also said this type of support is much less useful now "as a tool than ... at the very beginning [of the pandemic crisis]."

What to watch: Nine Fed officials (half of the committee) expect interest rates will rise from rock-bottom levels next year — up from the seven who said so in June.