WASHINGTON (1/28/14)--Today marks the last Federal Open Market Committee meeting that Chairman Ben Bernanke will reside over, and it is expected that the policymaking body will continue to slow its monthly asset-bond purchases.
At its December meeting, the Federal Reserve officials began to wind down the quantitative easing program--reducing its monthly purchases of mortgage-backed securities to $35 billion and long-term Treasuries to $40 billion.
The FOMC begins its two-day meeting today in Washington.
Analysts said that they believe the Fed wants to get out of the program, but the timeline varies. Bernard Baumohi, chief economist of Economic Outlook Group, told MarketWatch that the Fed "will continue to scale back the program and end it this year."
However, Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management, thinks the Fed will accelerate the pace beyond a $10 billion-per-month drawdown. "We expect the Fed to be done with bond purchases by September," Vail also told MarketWatch (Jan. 27). "They want to get out of this business."
This is the final meeting for Bernanke before Janet Yellen takes over as chair Feb. 1. Her immediate challenge is seen in an inflation rate that continues to hover below the Fed target of 2%. The 0.9% inflation rate is gaining over the unemployment rate as the barometer for Fed action (FOXBusiness Jan. 17).
Too-low inflation increases the possibility that a "negative shock" could lead to deflation, said Eric Rosengren, president, Federal Reserve Bank of Boston. "Furthermore, persistently low inflation can theoretically undermine the credibility of the central bank," Rosengren said in a Jan. 7 speech (Bloomberg.com Jan. 26).
Rosengren was the only dissenting member of the Fed policymaking body to the decision to cut the asset-bond purchases by $10 billion per month.