WASHINGTON (10/30/13, UPDATED 2:40 p.m. ET)--As expected, the monetary policymaking group for the Federal Reserve today voted 9-1 to stay the course on its $85 billion a month asset buying program, known as quantitative easing, and keep its target range for the federal funds rate at 0% to 0.25%.
In doing so, the Federal Open Market Committee, which had met yesterday and today, noted that "economic activity has continued to expand at a moderate pace." It cited "some further improvement" in labor market conditions but noted "the unemployment rate remains elevated."
In a statement after the meeting, the FOMC said that "household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the committee's longer-run objective, but longer-term inflation expectations have remained stable."
The FOMC said it "expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate" of fostering maximum employment and price stability.
It "sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall" and "recognizes that inflation persistently below its 2% objective could pose risks to economic performance," but the committee said it "anticipates that inflation will move back toward its objective over the medium term."
Keeping in mind the "extent of federal fiscal retrenchment over the past year," the FOMC noted it "sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."
It will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month--the program known as QE3, which "should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the committee's dual mandate," said the FOMC's statement.
The committee, which this past summer--before the federal government shutdown's impact on the economy--was considering tapering off QE3 beginning by year's end, instead said it would maintain the bond buying program "until the outlook for the labor market has improved substantially in a context of price stability."
Noting that "asset purchases are not on a preset course," the committee said that it will at its coming meetings "assess whether incoming information continues to support the committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective." Its decisions about the pace "will remain contingent on the committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases."
The committee also reaffirmed that its "highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens." It decided to keep the target range for the federal funds rate at 0% to O.25% and "currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."
In determining how long to maintain that "highly accommodative stance," the FOMC will also consider additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When it decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%, it said.
Voting for the FOMC monetary policy action were: Federal Reserve Chairman Ben S. Bernanke, Vice chairman William C. Dudley, James Bullard, Charles L. Evans, Jerome H. Powell, Eric S. Rosengren, Jeremy C. Stein, Daniel K. Tarullo, and Janet L. Yellen, the nominee to succeed Bernanke at the end of his term in January.
Esther L. George, who voted against the action, was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
For the full FOMC statement, use the link.