Fed Expects to Stop Bond Buying in October

The Federal Reserve continues to reduce its asset purchases.

Jul 9, 2014 at 4:26PM

The Federal Reserve Open Market Committee released (link opens as PDF) its latest meeting minutes today, revealing the expected end of its bond-buying era.

During its June 17-18 meeting, the FOMC decided, barring any economic surprises, to complete its bond-buying program in October 2014: "If the economy progresses about as the Committee expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting."

The Fed has been tapering its Treasury bonds and mortgage-backed securities purchases -- collectively known as "quantitative easing" or "QE" -- since January, but today's publicized meeting minutes are the first time a definitive date has been aired to investors, analysts, and the general public.

With an end date of October in sight, the Fed was also quick to reassure investors that the federal funds target rate won't be changing as soon. Currently set between 0.0% 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.

The Fed noted that any change in the target range would "depend on its assessment of actual and expected progress toward its objectives of maximum employment and 2 percent inflation," and that it "likely would be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends."

For investors, today's news carries no surprises, and the explicit reassurance from the FOMC serves as yet another signal that Federal Reserve Chair Janet Yellen won't be pulling any surprises on Mr. Market. For the moment, Uncle Sam's continued retreat from market interventions continues at a slow, steady, and predictable pace.

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