Fed Closes Chapter on Easy Money
The Feds Quantitative Easing 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.
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. For now the central bank stuck to an assurance that it will keep short-term interest rates near zero for a “considerable time.” Many investors and Fed officials expect no rate increases until the middle of next year.
The Fed—seeking to lower interest rates and push investors into risky assets, and in turn spur borrowing, spending, investment, growth and hiring—launched the latest round of bond purchases in September 2012, when it said it would buy $40 billion a month of mortgage bonds and keep going until it saw substantial improvement in the job market. It expanded the purchases in December 2012 by saying it would also buy $45 billion a month in Treasury bonds, for a total of $85 billion monthly. It has been phasing out the program gradually since January.
The worst fears about bond buying haven’t come to pass. Inflation, as measured by the Commerce Department’s personal consumption expenditure price index, has been unchanged at 1.5% since September 2012. The dollar, as measured by the Fed’s broad dollar index, is up 6.7% in value compared to the world’s other currencies. Meantime, the price of gold, which some investors believe should rise when inflation fears pick up, has fallen from $1730.60 per ounce to $1229.20, a 29% decline.
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