Federal Reserve Launches QE4!

On Wednesday, the Federal Reserve concluded its two-day Federal Open Market Committee meeting. Despite launching a third round of quantitative easing known as QE-infinity in September, the central bank launched QE4.

In the latest FOMC statement, the Federal Reserve met market expectations and said it will buy $45 billion of long-term Treasury securities, in order to replace Operation Twist that expires at the end of the year. Furthermore, it decided to keep interest rates at historic lows until at least as long the unemployment rate remains above 6.5 percent.

Two Key Parts of the FOMC statement are listed below:

  • “To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
  • “To support continued progress toward maximum employment and price stability, the 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 economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent 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 6-1/2 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.”

Fed’s balance sheet is on pace to explode…