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.
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