Federal Reserve ends bond-buying stimulus
The Federal Reserve cited an improving economy Wednesday as it ended its landmark bond-buying program and pointed to gains in the job market – a key condition for an eventual interest rate increase.
The Fed did reiterate its plan to maintain its benchmark short-term rate near zero “for a considerable time.” Most economists predict it won’t raise that rate, which affects many consumer and business loans, before mid-2015.
The Fed’s statement after its policy meeting Wednesday dropped a previous reference to “significant” in referring to an “underutilization” of available workers. Instead, the Fed said the excess of would-be job
holders is “gradually diminishing.”
It also noted solid hiring gains and a lower unemployment rate, now 5.9 percent.
Investors responded by positioning themselves for higher rates. The dollar rose against other currencies, bond yields ticked up, the price of gold fell and stock prices slipped.
David Jones, the chief economist at DMJ Advisors, said he was struck by the absence of any mention of global economic weakness, including the threat of another European recession.
Conservative critics of the bond-buying program hailed the move to end the purchases, a step they saw as long overdue.
The bond buying “has overstayed its welcome by years and by trillions” of dollars, House Financial Services Chairman Jeb Hensarling, R-Texas, said in a statement.
Michael Hanson, the senior economist at Bank of America Merrill Lynch, said the Fed still appears likely to put off any rate increase until at least mid-2015. “This isn’t the Fed rushing to the exits,” he said.
The Fed’s decision to end its third round of bond buying had been expected. It has gradually pared the purchases from $85 billion in Treasury and mortgage bonds each month to $15 billion.
And the Fed had said it would likely end the program after its October meeting if the economy continued to improve.
Even with the end of new purchases, the Fed’s investment holdings stand at $4.5 trillion
Source: mirroraugusta-Federal Reserve ends bond-buying stimulus
