U.S. Federal Reserve to continue QE

James Ryan Jonas

The United States Federal Reserve (Fed) announced it will indefinitely continue with its Quantitative Easing program, pressing on with its $85 billion monthly bond purchases as a way of extending stimulus to a still fragile US economy.

Federal Reserve officials see improvement in economic activity and labor market conditions but admitted that it wants to “await more evidence that progress will be sustained before adjusting the pace of its purchases.”

Since December 2012, the Fed has been buying $85 billion worth of bonds in the open market, providing liquidity and a much-needed boost to a stagnating US economy. The $85 billion Fed’s monthly purchases are divided into two: $40 billion in mortgage bonds and $45 billion in Treasury securities.

The Fed’s QE3 program is a monetary policy used by central banks to stimulate an economy when standard monetary policies have become ineffective. Read more about the Quantitative Easing program here.

The Federal Reserve’s action was widely expected, following less than stellar U.S. economic statistics. Consumer price inflation in September, for instance, was 1.2% — well below the central bank’s 2.0% target.

The U.S. jobless rate in August 2013 was 7.3%, still at the high end of the 7.1%-7.3% expected unemployment rate by the end of the year. The Fed’s unemployment rate target is 6.5% to 6.8% in 2014, but the U.S. economy appears to be struggling to hit this.

The Fed announcement is a confirmation of the Federal Open Market Committee (FOMC) decision in September 19 to continue with its bond-buying program because “current market conditions are still far from what all of us would like to see”.

The $85 billion QE purchases are expected to continue until March 2014 when the FOMC meets again.

The Fed sentiment was a bit of a turnaround from its June 2013 announcement when it said the QE3 tapering will start soon. Stock and bond markets declined that time after the Fed’s announcement that it winding down of the QE3 stimulus.

Read these other related articles:

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.