WASHINGTON (AP) — With inflation at its highest point in three decades, the Federal Reserve is set this week to begin winding down the extraordinary stimulus it has given the economy since the pandemic recession struck early last year, a process that could prove to be a risky balancing act.
Chair Jerome Powell has signaled that the Fed will announce after its policy meeting Wednesday that it will start paring its $120 billion in monthly bond purchases as soon as this month. Those purchases are intended to keep long-term loan rates low to encourage borrowing and spending.
Once the Fed has ended its bond purchases by mid-2022, it will then turn to a more difficult decision: When to raise its benchmark short-term rate from zero, where it’s been since COVID-19 hammered the economy in March 2020. Raising that rate, which affects many consumer and business loans, would be intended to make sure inflation doesn’t get out of control….