It may cease to QE

26 January 2011 By Martin Hutchinson

The FOMC kept rates low and stuck to its plan to buy $75 bln of Tbonds each month until June. But an alarming new $1.5 trln forecast for the 2011 U.S. deficit lifts the chances that the end of Fed purchases could rattle the market. The monetary policy challenges are multiplying.

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The U.S. Federal Open Market Committee on Jan. 26 maintained its fed funds interest rate target range of zero to 0.25 percent and confirmed it would continue the current program of purchasing longer term Treasury bonds in amounts of some $75 billion per month until June.

Also on Jan. 26, the Congressional Budget Office released its latest baseline budget outlook, which showed deficits of $1,480 billion in the year to September 2011 and $1,100 billion in the year to September 2012 up from previous forecasts of $980 billion and $649 billion respectively. The fiscal 2011 deficit represents 9.8 percent of projected GDP.

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