18th September 2014
As the end of the US central bank’s monetary stimulus programme edges closer markets are no wiser as to when interest rates will rise.
The Federal Reserve has repeated that rates will not tighten until a “considerable time” has passed after its quantitative easing (QE) policy comes to a close in October. The Fed previously used the same wording back in December 2012.
The US kick-started QE – essentially a form of electronic money printing – at the height of the financial crisis in a bid to bolster its economy. Since then the Fed has bought trillions in Treasury bonds and mortgage back securities.
However since the start of the year, the Fed on the back of the stronger economic outlook, has been gradually tapering back its purchases and the system will come to an end next month.
Following a meeting in Washington DC, the Fed’s board of governors led by Janet Yellen, issued a statement on Wednesday.
It said: “To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate.”
When QE comes to a close it asserted that it will continue to monitor and assess key economic measures including labour market conditions, inflation pressures and expectations, as well as readings on financial developments before any decisions to raise rates are taken.
It added: “The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored.”
In a separate note, it added: “When economic conditions and the economic outlook warrant a less accommodative monetary policy, the Committee will raise its target range for the federal funds rate.”
US markets welcomed the news with the Dow Jones closing at a new high on Wednesday.