After six years of quantitative easing, the Federal Reserve has announced it has ended the stimulus program, expressing confidence that the U.S. economic recovery will continue despite signs of a slowdown in the global economy.
The decision to shut down QE was not unexpected. As Reuters reports, the Fed’s monthly bond purchases “had been steadily cut from $85 billion to $15 billion as part of the Fed’s gradual turn away from policies launched to fight the 2007-2009 recession.”
“There has been a substantial improvement in the outlook for the labor market since the inception of [the] current asset purchase program,” the Fed explained in a statement. “Moreover, the [Federal Open Market] Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability.”
“Accordingly,” the statement said, “the Committee decided to conclude its asset purchase program this month.”
Reuters noted that the statement largely dismissed recent financial market volatility, dimming growth in Europe and a weak inflation outlook as headwinds that would do little to undercut progress toward the Fed’s unemployment and inflation goals.
“The Fed’s announcement is exactly what everyone expected,” Wayne Kaufman, chief market analyst at Phoenix Financial, told BBC News.
“The Fed sees enough improvement in economic activity to end QE, but at the same time, it will keep low rates because it isn’t yet seeing what it wants to see as far as inflation goes,” he said.
The Fed said it “likely will be appropriate to maintain the 0 to 0.25% target range for the federal funds rate for a considerable time … especially if projected inflation continues to run below the Committee’s 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored.”
Only Minneapolis Fed President Narayana Kocherlakota dissented from the statement, saying the Fed should keep the current target range for the federal funds rate at least until the inflation outlook for the next one to two years has returned to 2% and should continue the asset purchase program at its current level.