Monetary Policy in US – The FED ends quantitative easing

With the U.S. economy showing signs of life, the Federal Reserve moved Wednesday to end billions of dollars in monthly bond purchases aimed at boosting growth.

The central bank had initiated the policy, known as “quantitative easing,” in 2008 to keep interest rates low and boost economic activity following the financial crisis. Six years later, Fed officials said in a policy statement that the economy is improving at a “moderate” pace.

But in a notable upgrade to its outlook, the Fed said that the job market is showing stronger gains and that “underutilization of labor resources is gradually diminishing.” In September, policymakers said there remained “significant underutilization” of labor resources. The Fed also said that labor market conditions had improved further with “solid job gains and a lower unemployment rate.”

Although the Fed said it plans to keep interest rates low for a “considerable” time, investors seemed to think the first rate hike could come sooner rather than later. The Dow Jones industrial average, which had stayed mostly flat in the hours leading up to the Fed’s latest policy statement, dipped after the announcement.

“This is a small but significant step towards the first tightening, though action is not yet imminent given the still sticky 2 percent pace of wage gains,” said Ian Shepherdson, chief economist with Pantheon Macroeconomics, in a research note.

The change in the Fed’s view of employment indicates that the Fed believes that the job market, while not completely restored following the Great Recession, is at least in better shape. One of the Fed’s major goals is to achieve maximum employment, which it currently defines as an unemployment rate between 5.2 percent and 5.5 percent. The unemployment rate in September fell to 5.9 percent.

The decision was approved with a 9-1 vote.

Chosen excerpts by Job Market Monitor. Read the whole story at Fed pulls the plug on its stimulus program – CBS News.