The Federal Reserve is likely to continue or even expand its self-described “highly accommodative” monetary policy for some time, according to a statement issued Wednesday at the end of a two-day meeting of the Federal Open Market Committee.
Since last year, the FOMC has agreed to keep the federal funds rate at zero to 0.25% and to continue monthly purchases of $40 billion in agency mortgage-backed securities and $45 billion in longer-term Treasury securities, as long as the jobless rate remains above 6.5% and inflation remains low.
At the latest meeting, members signaled further changes to the purchase program known as quantitative easing, saying they were “prepared to increase or reduce the pace” of purchases, as the outlook for the labor market or inflation changes.
“I think the Fed is expanding their options here,” said Robert Tipp, managing director and chief investment strategist for Prudential Fixed Income, which ran $356 billion as of Sept. 30.
“They're not emphasizing any change in the economy, but at the same time they've clearly opened up the latitude on the purchase program. I'm sure some of (the FOMC members) are hoping that they can back off their purchases, but some of them may want more,” Mr. Tipp said in an interview.
Keeping the flexibility to go in either direction “is very reasonable,” said Chris Orndorff, senior portfolio manager for Western Asset Management, which runs $459.7 billion. With the FOMC noting continued downside risks to the economic outlook and continued low inflation, “it gives them the cover to follow the QE policies for a long time,” Mr. Orndorff said in an interview.