,The Fed is due to release its latest policy statement and economic projections at 2 p.m. EDT (1800 GMT), with Fed Chair Jerome Powell holding a news conference half an hour later to discuss the outcome.
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WASHINGTON: The Federal Reserve is expected to clear the way on Wednesday for reductions to its monthly asset purchases later this year and show in updated projections whether higher-than-expected inflation or a resurgent coronavirus pandemic is weighing more on the economic outlook.
Fed policymakers, who are wrapping up their latest two-day meeting, have been handed a conflicting set of developments since late July - signs of a slowdown in the service sector, a COVID-19 surge that has eclipsed that of last summer and weak job growth in August, all alongside still strong inflation - and been conflicted among themselves about how to react.
Officials have for the most part said the economic recovery will continue and allow the U.S. central bank to proceed with plans to reduce its $120 billion in monthly purchases of Treasuries and mortgage-backed securities by the end of 2021, and wind them down fully over the first half of next year.
But forecasters and outside analysts expect the Fed to hedge on exactly when the "taper" might begin, and tie it to a rebound in job growth following the disconcertingly tepid report in August, when only 235,000 jobs were created.
The Fed is due to release its latest policy statement and economic projections at 2 p.m. EDT (1800 GMT), with Fed Chair Jerome Powell holding a news conference half an hour later to discuss the outcome.
The statement will likely acknowledge that the economy has taken another step towards the "substantial further progress" the Fed has said it wants to see in the labor market before reducing its bond purchases, Jefferies economists Aneta Markowska and Thomas Simons said in an analysis. While August job growth was disappointing, U.S. nonfarm payrolls swelled by just over 1 million in July and have increased an average 716,000 since May.
Still, high-frequency data and alternate employment indicators have hinted that upcoming jobs gains may disappoint as well, and the Jefferies analysts said the first actual reduction in asset purchases will likely be "conditional on a solid September employment gain."
The U.S. job market remains about 5.3 million positions short of where it was before the pandemic.
More then 60% of economists who responded to a Reuters poll said they expected the tapering of the bond purchases to begin in December.
Fed officials, however, may decide they need more time to assess the risk from a handful of evolving issues before deciding to push ahead with the reduction in the bond-buying program.
Financial markets have been roiled in the last week by concerns about spillover effects from the potential collapse of a large Chinese property developer, China Evergrande Group, and the S&P 500 index kicked off the week with its largest daily loss in four months.