The US Federal Reserve has announced that it will be ending its quantitative easing (QE) program. Former head of the Federal Reserve Ben Bernanke called it ‘credit easing’.
The Federal Reserve, commonly referred to as the ‘Fed’, is confident that the US economy will continue to recover, even with the current global economic outlook being somewhat gloomy.
According to a statement by the Fed, the US has met inflation targets and a significant drop in unemployment.
“Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate.
The US economy is recovering at a good pace.
On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow.
Inflation has continued to run below the Committee’s longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.”
Since last year the Fed has been slowly cutting back on QE.
The central bank also announced that it will not be raising interest rates for a considerable time.
Despite the US job market strengthening, it is not quite back to normal, which is why interest rates will stay low for a while longer.
Wayne Kaufman, chief market analyst at Phoenix Financial, in New York, told the BBC:
“The Fed’s announcement is exactly what everyone expected,”
Adding:
“The Fed sees enough improvement in economic activity to end QE, but at the same time, it will keep low rates because it isn’t yet seeing what it wants to see as far as inflation goes,”
The Fed’s QE began in November 2008 when the financial crisis sent fears that the US could face another great depression.
The end of this QE program is a huge milestone in the recovery of the US economy.
