WASHINGTON (10/30/14)--Given that the Federal Open Market Committee (FOMC) said in the middle of 2013 that it was planning to retire its asset-purchase program, it was no surprise Wednesday when, at the conclusion of its two-day monetary policy meeting, the FOMC announced the program's official end.
Therefore, neither the announcement nor the actual termination of the quantitative easing program should have an effect on markets or the economy, according to Mike Schenk, vice president of economic and statistics for the Credit Union National Association.
"The fact that the economy has been growing and labor markets have been improving over most of the wind-down period is a good sign," Schenk told News Now.
But with the bond-buying program now a thing of the past, the Federal Reserve's monetary-policy making body must turn its attention to the short-term interest rates that it has kept near 0% for the past few years to help stimulate the economy.
As the FOMC said in its policy statement that it does not anticipate it will raise short-term rates for a "considerable time" after the end of the purchase program, and potentially not even for some time after inflation and unemployment reach levels that align with the committee's longer-run goals, it seems there's concern among the Fed about the prospects for the economy.
"The breadth of labor market recovery is not what the Fed would like it to be," Schenk said. "Wage gains have been fairly weak, and the housing market is recovering, but not robustly. That in addition to a weak Eurozone and obvious geopolitical uncertainties.
"With this as a backdrop, it's not surprising the Fed also stated its intention to keep its short-term interest rate target near zero for an extended period," Schenk said. "The Fed funds futures market reflects expectations of a first Fed move at a July 2015 FOMC meeting.
"In the meantime we expect labor and housing markets to continue to improve, and that should translate into continued high loan demand at credit unions in the coming months."