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December 12, 2012 at 09:22 AM
QE Whatever is now officially QE4.
The Federal Reserve announced Wednesday it would repurchase $85 billion in bonds each month for the foreseeable future. The announcement, following the two-day meeting of the Fed’s Open Market Committee (FOMC) was in line with economists’ predictions that the new policy would push the Fed’s balance sheet to almost $4 trillion.
The twist is that the future of any easing will be set to the level of the unemployment rate and the inflation rate rather than a specified period of time.
The Fed held the federal funds rates steady at between at 0% and 0.25%, saying it would peg that rate and its bond buying programs to a specific unemployment rate and inflation rate. The Fed said rates would remain at that low level for “at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a 0.5% point above the Committee’s 2% longer-run goal and longer-term inflation expectations continue to be well anchored.”
Moreover, 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 statement released Wednesday said it would “continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.”
