The Federal Reserve Board's Open Market Committee (FOMC) announced no change to U.S. monetary policy on Tuesday, leaving its plans intact for a $600 billion round of quantitative easing as the world’s central banks prepare for a currency war that pits developed countries against emerging economies.
The Federal Reserve’s policymakers said in their Dec. 14 announcement that the committee will maintain its policy of reinvesting principal payments from securities holdings and that it intends to purchase $600 billion of longer-term Treasury securities—a program also known as QE2—by the end of the second quarter of 2011, a pace of about $75 billion per month. Also, the FOMC will maintain the target range for the federal funds rate at its historic lows of 0% to 0.25%.
In announcing its decision to continue with monetary easing, the FOMC pointed to the nation’s stubbornly high unemployment rate of 9.8% and downward-trending inflation.
“Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the committee judges to be consistent, over the longer run, with its dual mandate,” the FOMC's formal announcement read. “Although the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.”
Analysts, who expected the Fed to stand pat, were unsurprised by the FOMC’s announcement.
“The Fed will clearly maintain its easy money stance until employment improves substantially. The only item that might possibly change this is a substantial increase in inflation. This is consistent with the Fed’s dual mandate of price stability and full employment,” said Doug Roberts, chief investment strategist for ChannelCapitalResearch.com in Shrewsbury, N.J.
But outside of the United States, many central-bank watchers are unhappy about the Treasury debt purchase program’s objectives, which many suspect is designed to inject enough liquidity into the economy to encourage exports by making the dollar weaker. Talk of a currency war, in which countries devalue their currencies to gain a trade advantage, now dominates the foreign-exchange headlines.
In a 2011 outlook, LPL Financial Corp.’s currency analysts said that a weaker