The Federal Reserve has declared that the economy has strengthened enough to warrant the discontinuation of its quantitative easing (QE) efforts.
In a statement issued by the central bank’s Federal Open Market Committee (FOMC), the Fed leadership stated that: “There has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the 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 Committee decided to conclude its asset purchase program this month.”
The Fed acknowledged that the “recovery in the housing sector remains slow,” but it nonetheless insisted that other aspects of the economy have improved.
“Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate,” the Fed’s stated. “On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while. Inflation has continued to run below the Committee's longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.”
Nonetheless, the Fed cautioned that a full recovery has not taken root and that it would continue to act accordingly to prevent an economic reversal.
“The Committee 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 and of rolling over maturing Treasury securities at auction,” said the central bank leadership in its statement. “This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.”
