The US central bank announced on Thursday it will resume its policy of pumping more money into the economy via so-called quantitative easing which consists of buying additional agency mortgage-backed securities at a pace of 40 billion dollars per month.
Following a two day meeting the Federal Open Market Committee also said it could increase the size of its purchases if the economy does not improve, leaving open the time period for the latest quantitative easing. Interest rates in the US have been close to zero for several years now, and the Fed again kept them at below 0.25% and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, “the FOMC agreed to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of 40 billion dollars per month”, said the release.
It added that the FOMC “will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities”.
These actions, “which together will increase the Committee’s holdings of longer-term securities by about 85 billion dollars each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative”.
In a brief description of the US economy the FOMC said that economic activity continue to expand at a moderate rate but growth in employment has been slow and the unemployment remains elevated. Despite the fact household spending has continued to advance, growth in business fixed investment appears to have slowed and housing is showing signs of improvement but from a depressed level.
FOMC also anticipates that although prices of some key commodities have risen, inflation over the medium term likely would run at or below its 2% objective.
Nevertheless the FOMC will closely monitor incoming information on economic and financial developments in coming months and if the outlook for the labour market does not improve substantially, it will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability”.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.