Fed’s $4 trillion holdings keep boosting growth
Quantitative easing may turn out to be a gift that keeps on giving for the U.S. economy.
As the Federal Reserve prepares to end its third round of bond buying next week, the central bank plans to hang on to the record $4.48 trillion balance sheet it has accumulated since announcing the first round of purchases in November 2008.
That will continue to keep a lid on borrowing costs, helping the Fed lift inflation closer to its target and providing support to a five-year expansion facing headwinds abroad, from war in the Mideast to slowing growth in Europe and China.
Holding bonds on the Fed’s balance sheet limits the supply of securities trading on the public markets, which helps keep prices up and yields lower than they otherwise would be.
“Preserving it will continue to support the economy,” Gapen said. “The Fed message is we think we’ve done enough to generate momentum and keep the economy on the right track. Now we’re going to wait and see how things go.”
Chair Janet Yellen opened the door to keeping a multi-trillion-dollar portfolio for years, saying a decision on when to stop reinvesting maturing bonds depends on financial conditions and the economic outlook.
The FOMC said in a supplementary statement at the last meeting that it expects to stop reinvestments of maturing securities once it starts raising the benchmark interest rate, a step that policy makers project they will take next year.
The jobless rate when QE3 started under Chairman Ben S. Bernanke stood at 8.1 percent, and policy makers forecast it would fall to 6 percent to 6.8 percent by late 2015. It’s now 5.9 percent, near what most officials project is full employment, and monthly payroll growth has averaged 209,000 for the past two years, up from a 172,000 monthly average during the prior two-year period.
Source: bloomberg- Fed’s $4 trillion holdings keep boosting growth
