US Federal Reserve Signals End to QE Programme

The US Federal Reserve has signaled that will end its five years-old economic stimulus programme of quantitative easing (QE) this October, despite recent disappointing US economic growth data.

Officials have been steadily winding down their monthly purchases of Treasury bonds and mortgage-backed securities since January this year, but before now had not set an end date for the scheme.

“If the economy progresses about as the [Fed] expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting,” the Fed said in minutes released from its June policy meeting.

Wrapping up the latest, and last, round of economic stimulus, known as QE3, the Fed is making monthly purchases of US$35bn in assets, down from a peak of $85bn. It now plans to further reduce the purchases in increments at its next three policy meetings, ending it in October.

Federal Reserve chair Janet Yellen has clearly stated that she intends to follow her predecessor, Ben Bernanke, in winding down the QE programme and weaning the US economy off the stimulus. Although an unusually harsh winter in the first months of 2014 set back the recovery, more recent data, including strong job growth, suggest that the effects were temporary.

In the minutes, Fed officials noted that “both long- and short-term unemployment and measures that include marginally attached workers had declined.

“Most participants projected the improvement in labour market conditions to continue, with the unemployment rate moving down gradually over the medium term.”

However, the minutes also show some Fed officials concerned over risks in the financial markets, and whether “recent trends in financial markets might suggest that investors were not appropriately taking account of risks in their investment decisions.”

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