The Federal Reserve will stop its monthly purchases of agency mortgage-backed securities and longer-term Treasury securities under its quantitative easing program, while forward guidance maintains interest rates will remain at zero to 0.25% range, for a "considerable time," the Federal Open Market Committee
The FOMC's policy statement pointed to continued moderate economic expansion, improved labor markets, rising household spending and a slow housing recovery, with inflation below the Fed's long-run objective.
"The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced," the statement said, "Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year."
While ending its asset purchase program this month, the FOMC will maintain "its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions."
Also, the FOMC "reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate." The rates will stay at this level based on movement "both realized and expected" toward maximum employment and 2% inflation.
The statement noted, "The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored."
The Fed also left in the wording that developments in either direction could hasten or slow the change in the target rate.
Dissenting on the vote was Federal Reserve bank of Minneapolis President Narayana Kocherlakota, "who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level."
