Fed Ends Quantitative Easing Program; May Focus on Interest Rates

The Federal Reserve on Wednesday announced it would end its long-running bond-purchase program, known as quantitative easing.

"There has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program," reads part of a statement released by the Fed on Wednesday. "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 says it 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.

"This policy, by keeping the committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions," said the Fed.

The three rounds of QE undertaken by the Fed since 2008 have generated trillions of dollars for the American economy through a process in which the central bank has perpetually pumped money into long-term government bonds and bonds backed by home mortgages.

The program ends with mixed reviews. While it clearly didn’t cause the inflation outbreak some predicted, it also didn’t clearly lead to a surge of economic output or hiring, reports the Wall Street Journal.

The Journal reports that if all goes as they expect, officials will now turn their attention in the months ahead to discussions about when to start raising interest rates and how to signal those moves to the public before they happen.

Many investors and Fed officials expect no rate increases until the middle of next year.

The Fed has twice announced an end to its bond purchasing programs, only to soon after start again when it was realized that the desired effect failed to be achieved. The end to QE3 might once and for all be the final nail in the program’s coffin.


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