Fed Continues QE, Keeps Interest Rate Low

FOMC anticipates inflation over the medium term will run at or below its 2% objective.

Justin Loiseau
Justin Loiseau
(TMFJLo)
Mar 20, 2013 at 2:59PM
Markets

The Fed will keep interest rates low while continuing its quantitative easing, according to a Federal Reserve statement released today.

Since the Board of Governors last met in January, the labor market, housing market, and business conditions have all showed signs of improvements. However, the Fed also noted that the unemployment rate remains high, fiscal policy is more restrictive, and inflation is slightly below the Fed's long-term 2% target.

To help aid the economic recovery, the FOMC voted 11-1 (Kansas City Fed President Esther George dissenting) to continue its economic stimulus plan, buying $40 billion of mortgage-backed securities and $45 billion of longer-term Treasury securities each month. Proponents of the plan believe that this, along with other actions, will keep interest rates low while supporting mortgage markets. George voiced concern with long-term risks and imbalances associated with continued monetary accommodation.

Looking ahead, the Fed expects to keep interest rates between zero and 0.25% until the unemployment rate drops below 6.5%. It currently is 7.7%. As of now, the Fed does not see inflation as a major threat, and expects that inflation over the "medium term" likely will run at or below its 2% objective. 

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