The Federal Open Market Committee (FOMC) said it will await more evidence that progress in the economy is sustainable before adjusting its pace of Treasury and mortgage-backed securities. Investors largely expected the FOMC to announce a plan to back off the purchases, leading to a sharp softening of the U.S. dollar index following the announcement.
Specifically, the FOMC said it has decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities 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 of 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, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate," is said.
The FOMC said it will continue to closely monitor economic and financial developments and employ its other policy tools until "the outlook for the labor market has improved substantially in a context of price stability." It adds, "In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases."
In an expected move, the FOMC left its target for the federal funds rate at 0 to 0.25%. It also said the economy has been expanding at a moderate pace and the labor market has shown further improvement in recent months, although unemployment remains elevated.
Voting against the action was Esther L. George, who was concerned the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.