Watch the wake

20 March 2013 By Martin Hutchinson

The U.S. central bank shows no signs of scaling back $85 bln of monthly bond buys and says much time would elapse between ending purchases and raising rates. Yet the Fed’s 2015 target of up to 4.5 pct is a far cry from six years near zero. The rapid turn could shock the system.

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The Federal Reserve’s policy-setting committee said on March 20 its federal funds target rate remained at zero to 0.25 percent and confirmed the continuation of a program to buy $85 billion of Treasury and agency bonds monthly. The Federal Open Market Committee “expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the recovery strengthens.”
The FOMC also reaffirmed that “the current exceptionally low level for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal and longer-term inflation expectations continue to be well anchored.”
Esther George of the Kansas City Fed was the only dissenter against the decision, expressing concern that asset purchases could lead to financial imbalances and inflation.

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