The Federal Open Market Committee concluded its meeting Wednesday
September 24 with continuation of Quantitative Easing and Operation Twist.
The FOMC statement
includes the following.
Information
received since the Federal Open Market Committee met in September suggests that
economic activity has continued to expand at a moderate pace in recent months.
Growth in employment has been slow, and the unemployment rate remains elevated.
Household spending has advanced a bit more quickly, but growth in business fixed
investment has slowed. The housing sector has shown some further signs of
improvement, albeit from a depressed level. Inflation recently picked up
somewhat, reflecting higher energy prices. Longer-term inflation expectations
have remained stable ...
To support
a stronger economic recovery and to help ensure that inflation, over time, is
at the rate most consistent with its dual mandate, the Committee will continue
purchasing additional agency mortgage-backed securities at a pace of $40
billion per month. The Committee also will continue through the end of the year
its program to extend the average maturity of its holdings of Treasury
securities, and it is maintaining its existing policy of reinvesting principal
payments from its holdings of agency debt and agency mortgage-backed securities
in agency mortgage-backed securities. These actions, which together will
increase the Committee’s holdings of longer-term securities by about $85
billion each month through the end of the year, should put downward pressure on
longer-term interest rates, support mortgage markets, and help to make broader
financial conditions more accommodative. ...
To support
continued progress toward maximum employment and price stability, the Committee
expects that a highly accommodative stance of monetary policy will remain
appropriate for a considerable time after the economic recovery strengthens. In
particular, the Committee also decided today to keep the target range for the
federal funds rate at 0 to 1/4 percent and currently anticipates that
exceptionally low levels for the federal funds rate are likely to be warranted
at least through mid-2015. ... 1
The Fed has decided to continue its unprecedented
expansionary policy for the indefinite future. The purchase of securities and
the lengthening of the maturity of securities held (operation twist) are
expected to begin to have a bigger impact on spending, income and employment.
There is some evidence that that the housing market is
beginning to expand. When housing prices begin to move up, we can again begin
to see consumer wealth increasing and with it increased spending. This change
is welcomed and may signal the end of the slow recovery. The disastrous loss of
wealth for middle income America has been one of the most important reasons for
the slow recovery. Good times ahead? Perhaps we will see faster growth of the
economy, unless inflation appears or international economic conditions continue
to deteriorate.
1. FOMC policy statement http://www.federalreserve.gov/newsevents/press/monetary/20121024a.htm
