FOMC: Quantitative Easing as Far as the Eye Can See!

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Saying that the Federal Open Market Committee (FOMC) it sees improvement in U.S. economic activity and in the U.S. labor market since beginning its $85 billion asset purchase program, the committee nonetheless concluded that it needs to “await more evidence that progress will be sustained before adjusting the pace of its purchases.” Anyone expecting a different conclusion has been living on another planet.

As has been the case for several announcements, the lone dissenting vote came from Kansas City Fed President Esther George who continues to worry that the “high level of monetary accommodation [increases] the risks of future economic and financial imbalances, and, over time, could cause an increase in long-term inflation expectations.” Nine FOMC members, including chairwoman-designate Janet Yellen, voted to maintain the asset buying program at its present level.

The FOMC also agreed to maintain its target range for the federal funds rate at 0 to 0.25% and said that it expects this “exceptionally low rate” to be appropriate as long as the unemployment rate remains above 6.5%. The FOMC believes that inflation expectations for the next one to two years suggest inflation will rise no more than half a percentage point above the Fed’s 2% long-run goal, keeping longer-term inflation expectations “well-anchored.”

The markets reacted by first sending share prices up, then down, then up again to pre-FOMC announcement levels.

The language of the announcement formally gives the Federal Reserve ammo to maintain its $85 billion in monthly bond buying stimulus, while still having an out to begin tapering if things get better.