Fed on QE: We Must Stay the Course

The Federal Reserve stuck to its guns Wednesday, announcing that it will stay the course and continue its much-talked-about quantitative easing strategy.

In statements that wrapped up two days worth of meetings, the Fed acknowledged that the housing market finally appears headed in the right direction, but that now is not the time to make any adjustments in policy.

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“The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the Federal Open Market Committee’s statement said.

To that end, the central bank vowed to continue purchasing $40 billion in mortgage-backed debt per month in its effort to stimulate economic growth.  It also reiterated its intent to hold rates down near zero until mid-2015.

The potential pitfall of the Fed’s quantitative easing is the risk of rising inflation, which critics like Richmond Fed President Jeffrey Lacker have been quick to point out. While the Federal Reserve did grant that inflation rates have gone up, it attributed the increase to higher energy prices and added that inflation expectations remain stable.

As of Wednesday’s announcement, no formal timetable for the Fed’s $40 billion-per-month spending spree has been given and the policy is expected to proceed open-endedly until employment and economic growth rates further improve.

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