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So This Is How Quantitative Easing Dies…
…with a whimper.
The Federal Reserve was expected today to end quantitative easing, and it did.
The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month.
It found that job gains were “solid” and “underutilization of labor resources is gradually diminishing.” While acknowledging current inflation was running below its 2% target, it found that “the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.”
So QE3 is put to bed. The two hawks who dissented last time were now brought into the fold and voted for the statement. The one dissenting vote, from Minneapolis Fed President Narayana Kocherlakota, was for continuing QE3 until inflation expectations had actually returned to the 2% goal. This despite a statement that current conditions called for a lower Federal funds rate than is normally expected.
Despite market opinion was that this statement was more hawkish than expected most participants still expect interest rates to begin their rise in mid-2015. Stock market prices shrugged off the change, indicating that the tone of the FOMC statement was as expected.
The key new sentence for me was this:
However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated.
They have not said this before, and I think it’s important. If, as I believe, GDP growth reported tomorrow comes in closer to 3.5% than 3% and does something of the same in Q4, I believe the return of normal monetary policy — non-zero Federal funds rates — will be sooner than the market expects. So maybe QE3 whimpers to zero, but the winter may yet bring a surprise.
Published in General
Watch your variable rate debt!
Better yet, don’t use variable rate debt!
There’s something to be said for fake employment data, if it finally brings this QE3 program to an end.
I had no idea that QE was still going on!
It seems like a relic from a bygone era.
QE, aka “The Asset Inflator”.
Funny how QE’s major impact was to inflate stock prices, and housing prices, but inflation talk was much of the rationalization surrounding ending it, while keeping a future QE on the table. Inflation is way up, if you include the things that people buy that aren’t included in the standard metrics like CPI.
What I’d really like is less idiotic and nonsensical market interventions, considering how much ZIRP contributed (and still contributes) to asset bubbles like housing, which are repeating the same trends seen prior to the beginning of this recession. The Fed’s mantra seems to be “lather, rinse, repeat”.
Nothing that’s been done has had any effect on median household incomes, which is really the true barometer of the economy on the household. It’s down, it’s been down, and continues to stay down – right in a correlative line with what the Fed’s actions have been over the past years.
Lower incomes and inflate bubbles. Quite the legacy, there.
An end or a temporary halt? When these yahoos decide it is time for QE4, or will it be QE1 redo, it will shake not bolster market confidence and will serve to accelerate deflation. The market has far more influence on the Fed than the Fed has on the market. It is amazing that these economists publicly say they can correctly anticipate market movement and people take them seriously. Perhaps Yellen and company should consider taking up twirling, that would be less obscene and more entertaining.
Hi Chris C. Regarding “…Nothing that’s been done has had any effect on median household incomes…”
I’d restate that to be “… Nothing that’s been done has had any Beneficial effect on median household incomes …”
The Fed’s ZIRP – AKA financial repression – has absolutely crushed the incomes of savers – especially the incomes of retirees. Given the large and increasing slice of the demographic they represent, I’m certain that part of the sluggishness in overall median household incomes is a direct result of dire impact of ZIRP on retirees’ incomes.