The Federal Open Market Committee in March voted to continue tapering the Federal Reserve's bond buying program by another $10 billion per month.
Starting May 1, the Fed will reduce its acquisition of agency mortgage-backed securities from the current $25 billion per month to $20 billion per month and will reduce its purchase of longer-term Treasury securities from the current $30 billion per month to $25 billion per month.
Many have been wondering for months now how soon the Fed will move to raise short term interest rates once it completely winds down its bond buying program, which at he current pace will happen by the end of this year. Although Fed Chair Janet Yellen got pretty specific a couple months back when she said the Fed might decide to raise rates within six months of the completion of tapering, a new statement within the FOMC's minutes leaves that issue wide open:
‘The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the long run,’ the minutes state.
In other words, the Fed is staying the course.
‘In determining how long to maintain the current 0 percent to 0.25 percent target range for the federal funds rate, the committee will assess progress – both realized and expected – toward its objectives of maximum employment and 2 percent inflation,’ the FOMC says in its statement. ‘This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.
‘The committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the committee's two percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.’
Raising the question once again – how long is a ‘considerable time?’
To read the full FOMC statement, click here.