Federal Reserve to end bond buying but keep interest rates low

The Federal Reserve confirmed it will end an asset-purchase program that has added $1.66 trillion to its balance sheet and maintained a pledge to keep interest rates low for a “considerable time.”
“Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate,” the Federal Open Market Committee said Wednesday in a statement. “A range of labor market indicators suggests that underutilization of labor resources is gradually diminishing,” the panel said, modifying earlier language that “there remains significant underutilization of labor resources.”
Policy makers said that while inflation in the near term will probably be held down by lower energy prices, it repeated language from its September statement that “the likelihood of inflation running persistently below 2% has diminished somewhat.”
(Related: Investors push rate-hike forecast out to late 2015)
Chair Janet Yellen is completing two years of bond purchases that started under her predecessor, Ben S. Bernanke, as the Fed nears its goal for full employment. She must now chart a course toward the first interest-rate increase since 2006 while confronting risks from a slowing global economy and declining inflation. The FOMC repeated it will consider a wide range of information in deciding when to raise the federal funds rate, which has been held near zero since December 2008. Most Fed officials expect to raise the rate next year, according to projections released last month.
The Fed said it will continue reinvesting proceeds from a balance sheet that swelled to a record $4.48 trillion in the course of three rounds of so-called quantitative easing that started in November 2008 during the longest and deepest recession since the 1930s.
The latest round was announced in September 2012, with monthly purchases of $85 billion in Treasuries and mortgage-backed securities. The Fed began a step-like reduction of purchases in January 2014, cutting them by $10 billion per meeting.
Minneapolis Fed President Narayana Kocherlakota dissented, saying that with low inflation expectations the Fed should commit to keeping rates low “at least until the one-to-two-year ahead inflation outlook has returned to 2% and should continue the asset-purchase program at its current level.”
As the Fed winds down unprecedented stimulus, the European Central Bank is contemplating its own quantitative easing program to tackle the weakest inflation in five years, and Japan is continuing purchases.