WASHINGTON — The Federal Reserve will "modestly reduce the pace of its asset purchases," and beginning in January will buy longer-term Treasuries at a rate of $40 billion per month and mortgage-backed securities at a rate of $35 billion per month, the Federal Open Market Committee said in a statement released Wednesday following the committee's two-day meeting.
"Taking into account the extent of the federal fiscal retrenchment since the inception of its current asset purchase program, the committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy," the FOMC said.
The existing December schedules of MBS purchases at a pace $40 billion per month and Treasuries at a pace of $45 billion per month will remain in effect until that time.
The committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should "maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," the FOMC said in its statement.
"The committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities and, employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability," the statement said.
FOMC added that "asset purchases are not on a preset course, and the committee's decisions about their pace will remain contingent on the committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases."
The FOMC also decided to keep the target range for the federal funds rate at zero to 0.25% and said it currently anticipates that exceptionally low levels for the federal funds rate will likely be warranted at least as long as the unemployment rate remains above 6.5% and inflation is projected to be no more than 2.5%.
The committee now expects "that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below the committee's 2% longer-run goal. When the committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%."
Voting against the decision was Eric S. Rosengren, "who believes that, with the unemployment rate still elevated and the inflation rate well below the target, changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate," the FOMC said.
