To: Elroy Jetson who wrote (108171 ) 10/29/2014 11:01:50 PM From: elmatador Respond to of 219888 Fed eyes first rate rise after end to QE big shift in the Fed’s horizons away from aggressive monetary stimulusFed eyes first rate rise after end to QE Robin Harding in Washington In a marked change of language, the rate-setting Federal Open Market Committee highlighted an improvement in the US labour market. Dropping its previous view that there was “significant underutilisation” of labour resources it said instead that this was “gradually diminishing”. This signals a big shift in the Fed’s horizons away from aggressive monetary stimulus via its third round of asset purchases, or quantitative easing, and towards the need for an eventual rise in interest rates from their current level close to zero. The Fed voted for the statement by a majority of 9-1. In a sign of how much tougher the statement was, the dissenter was not one of the ‘hawks’, but Narayana Kocherlakota of the Minneapolis Fed, a ‘dove’ who wanted the Fed to commit to a longer period of low rates. The statement shows the Fed has shrugged off a recent bout of market turmoil and concerns about the global economy. It noted, however, that “market-based measures of inflation expectations have declined somewhat”, a sign of continued concern. The Fed kept its forecast of low rates for a “considerable time”, but made clear that the clock starts ticking now and inserted an escape clause to allow for even earlier rate rises if the economy improves faster than expected. “If incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated,” says the Fed statement. “Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.” In a widely expected move, the Fed completed the taper of its last $15bn-a-month in asset purchases, and will keep its balance sheet stable from now on. The Fed began its third round of quantitative easing, known as QE3, in September of 2012 when it pledged to buy $85bn of long-term assets every month until there was a substantial improvement in the jobs market. Since then, the unemployment rate has fallen from 8.1 per cent to 5.9 per cent, so the Fed thinks QE3 has reached its goal. The programme has always been controversial – raising fears of financial market bubbles in particular – but most economists think it has helped put the US economy back on track. “The Committee judges that there has been a substantial improvement in the outlook for the labour market since the inception of its current asset purchase programme,” says the statement. The Fed began to taper its asset buying last December and the pace of purchases was down to $15bn-a-month ahead of this meeting. The goal of QE was to push down long-term interest rates after short-term rates hit zero. Meanwhile, at an event in New York on Wednesday, former Fed chairman Alan Greenspan said he thought it was impossible for the Fed to exit from easy monetary policy without market turmoil. He said the Fed’s asset purchases, which it halted yesterday, had been a “terrific success” in boosting asset prices but had little effect in stimulating real demand in the economy. Mr Greenspan recommended investing in gold.