Fed Cuts Back on Quantitative Easing Again

The Federal Open Market Committee (FOMC) announced today that it will cut back again on quantitative easing (paring an additional $10 billion in bond purchases per month) as the economy slowly strengthens, but will keep the federal funds target range between 0% and 0.25%. 

The federal funds rate is the interest rate at which large financial institutions lend and borrow money from their balances with the Federal Reserve, which affects the interest rates for all loans. By keeping the federal funds rate low, the Federal Reserve aims to promote borrowing money and discourage saving it, a recipe for increased economic activity.

Analysts had expected the target range to remain steady at next to nothing, but the decision to taper off mortgage-backed and Treasury securities was less set in stone. According to the announcement, the "cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions" pushed the Committee to its newest tapering resolution, which will put the Fed's bond buying at $65 billion per month.

This latest move mimics the Committee's December decision as it chips another $5 billion off both mortgage-backed and Treasury securities, putting monthly purchases at $30 billion and $35 billion, respectively.

Looking ahead, the Fed reiterated that a "highly accommodative" policy will remain appropriate for a "considerable time," even after the recovery improves and quantitative easing ends.

It also affirmed that it doesn't expect to increase interest rates until the unemployment rate drops below 6.5%, and perhaps not even then, depending on other economic considerations. The current unemployment rate stands at 6.7%.

link


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2815400, ~/Articles/ArticleHandler.aspx, 4/23/2014 2:11:57 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement