WASHINGTON, D.C. (1/29/14, UPDATED 2:20 p.m. ET)--The Federal Open Market Committee will continue with its "measured reduction" in its monthly asset-bond purchases program, known as quantitative easing (QE), it announced today.
The policymaking group said in February it would add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month.
The decision was made "in light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions," according to the Fed's statement.
If the FOMC continues with $10 billion in reductions at each of its eight meetings this year, it should be done with QE by year's end (Barron's Jan. 28). However, the Fed statement noted 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."
In December, the Fed voted to "modestly reduce the pace" of its monthly asset-bond purchases to $75 billion per month from $85 billion. This month it added $35 billion per month of agency mortgage-backed securities to its holdings, down from $40 billion. Additionally, long-term U.S. Treasury securities dropped to $40 billion per month, down from $45 billion.
Analysts suspected that the Federal Reserve committee would replace the 6.5% unemployment threshold with another labor-related market indicator when making interest rate decisions (MarketWatch Jan. 28).
The FOMC reaffirmed its expectation that the "current exceptionally low target range for the federal funds rate of 0% to 0.25% will be appropriate at least as long" as the unemployment rate remains above 6.5%. The rate will remain stable as inflation in the next one to two years is projected to be no more than a half-percentage point above the Committee's 2%. Longer-term inflation expectations continue to be well anchored, it said.
This was the last meeting for Fed Chairman Ben Bernanke whose eight-year term ends Friday, and Janet Yellen rises to the top Fed position effective Saturday.
Voting for the FOMC monetary policy action were Bernanke, Yellen, Vice Chairman William Dudley, James Bullard, Charles Evans, Esther George, Jerome Powell, Jeremy Stein, Daniel Tarullo and Eric Rosengren.