Goodbye, Quantitative Easing. Hello, Stable Economy?
From Scottrade
The two big questions everyone has been asking around monetary policy for the last few years are: (1) when is the Fed going to end their quantitative easing bond-buying program and (2) when will they raise interest rates? We're still waiting for the answer to the second question, but we've got our answer to the first now.
On Oct. 29, the Federal Reserve announced the end of its $3 trillion quantitative easing program. Originally intended to be a one-time stimulation of the economy during the 2008 crisis, the Fed's non-traditional monetary policy has lasted six years longer than expected. Now that the third round of quantitative easing, QE3, is coming to an end, we all want to know what's next for the economy and what it means for the market.
What the Fed's Decision Means
Quantitative easing is a monetary policy designed to stimulate a slow economy when traditional monetary policies aren't working. So the end of the program can be seen as good news; it means the Fed believes the U.S. economy has stabilized enough to continue on without help from the central banks. According to the Federal Open Market Committee (FOMC) statement released on Oct. 29, the Fed believes that labor market conditions are continuing to improve, the unemployment rate continues to decrease and they expect economic activity to continue expanding. 1
Quantitative Easing and the Markets
No one is certain what will happen now that the QE program is being pulled. Academics and economists seem to be split on their economic projections, despite ongoing debates about the necessity and impact of quantitative easing, and the effects of ending such a large-scale stimulus. The Fed's announcement doesn't necessarily mean the market will go up or down; it's just going to go on without extra stimulus from the Fed.
However, between 2008 and 2011, the Fed twice announced the end of quantitative easing, only to reinstate the program when the FOMC deemed it necessary.
What about Interest Rates and the Future of Monetary Policy?
The most recent FOMC statement quotes the Committee as saying, once again, that it will be considerable time before interest rates are raised from their current 0-to-1/4 percent target. When the Fed does decide to raise rates, they may do so gradually rather than all at once. As expected, the statement says the FMOC will continue to “assess progress – both realized and expected – toward its objectives of maximum employment and 2 percent inflation” and adjust their approach to interest rates accordingly. 1
1 2014, October. Federal Open Market Committee Press Release. http://www.federalreserve.gov/newsevents/pres...41029a.htm
From Scottrade
The two big questions everyone has been asking around monetary policy for the last few years are: (1) when is the Fed going to end their quantitative easing bond-buying program and (2) when will they raise interest rates? We're still waiting for the answer to the second question, but we've got our answer to the first now.
On Oct. 29, the Federal Reserve announced the end of its $3 trillion quantitative easing program. Originally intended to be a one-time stimulation of the economy during the 2008 crisis, the Fed's non-traditional monetary policy has lasted six years longer than expected. Now that the third round of quantitative easing, QE3, is coming to an end, we all want to know what's next for the economy and what it means for the market.
What the Fed's Decision Means
Quantitative easing is a monetary policy designed to stimulate a slow economy when traditional monetary policies aren't working. So the end of the program can be seen as good news; it means the Fed believes the U.S. economy has stabilized enough to continue on without help from the central banks. According to the Federal Open Market Committee (FOMC) statement released on Oct. 29, the Fed believes that labor market conditions are continuing to improve, the unemployment rate continues to decrease and they expect economic activity to continue expanding. 1
Quantitative Easing and the Markets
No one is certain what will happen now that the QE program is being pulled. Academics and economists seem to be split on their economic projections, despite ongoing debates about the necessity and impact of quantitative easing, and the effects of ending such a large-scale stimulus. The Fed's announcement doesn't necessarily mean the market will go up or down; it's just going to go on without extra stimulus from the Fed.
However, between 2008 and 2011, the Fed twice announced the end of quantitative easing, only to reinstate the program when the FOMC deemed it necessary.
What about Interest Rates and the Future of Monetary Policy?
The most recent FOMC statement quotes the Committee as saying, once again, that it will be considerable time before interest rates are raised from their current 0-to-1/4 percent target. When the Fed does decide to raise rates, they may do so gradually rather than all at once. As expected, the statement says the FMOC will continue to “assess progress – both realized and expected – toward its objectives of maximum employment and 2 percent inflation” and adjust their approach to interest rates accordingly. 1
1 2014, October. Federal Open Market Committee Press Release. http://www.federalreserve.gov/newsevents/pres...41029a.htm
