Fed makes decision on tapering

by Rachel.Norvell29 Oct 2014
The Federal Reserve has issued a statement today that it has decided to put an end to its bond-buying program due to the strength in the broader economy and its more positive outlook for the labor market. However, the Fed plans to continue its zero interest rate policy.

"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 of rolling over maturing Treasury securities at auction," said the FOMC. "This policy, by keeping the committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions." It will keep its current 0 to 1/4 percent target range.

The decision comes from its two-day FOMC meeting in Washington, D.C earlier this week

Earlier this week economic researchers at Goldman Sachs predicted concerns over global growth should have little effect on the Fed’s decision to end QE purchases as a large number of Fed officials have guided toward an end of purchases in October. For example, Eric Rosengren, president of the Boston Fed, said in a interview with the Financial Times last week that the Fed should not let the financial market turmoil affect the agency’s pledge to end its bond-buying program.

During the Sept. 16-17 meeting, the Fed voted 8-2 to keep its key short-term interest rate at a record low. Officials said that the timing of an interest rate hike will depend on how close the economy is to achieving the Fed's goals for maximum employment and inflation running at an annual rate of 2%.

The Fed also said during the meeting that when it does start to unwind its bond-buying program, it will do so “in a gradual and predictable manner,” principally by allowing purchased securities to expire at maturity. Currently, the Fed still holds more than $4 trillion in securities it has purchased since 2008.

Click here to read the FOMC's full statement.