By a 9-1 majority the U.S. Federal Reserve on Wednesday chose to hold firm to its $85bn-a-month monetary stimulus policy of quantitative easing (QE) despite speculation that it may trim down this bond-purchase programme by $10bn.
Although Fed Chairman Ben Bernanke hinted at a “tapering” of this policy three months ago, he and other Fed officials suggested that cuts to monetary expansion that may put upward pressure on interest rates would be sanctioned “only if the economy continued to recover as they expected, and some of the more recent economic data have suggested projections for the second half of the year may not be realised.”
The U.S. central bank’s Federal Open Market Committee decided to “await more evidence” on whether the improvement in economic activity and labour market conditions since the asset purchase programme began a year ago will be sustained before adjusting the bond purchases downwards.
Hinting at some of the factors driving its decision to hold steady with QE, the FOMC said it made the decision after considering the fact that the unemployment rate remained elevated; despite the housing sector strengthening mortgage rates have risen further; and fiscal policy was restraining growth.
Besides these factors, the Fed appeared to be watching the inflation rate, which has been running below the Committee’s long-run objective of two per cent despite energy price fluctuations.
