Thursday, January 3, 2013

December FOMC Minutes: QE4ever & 6.5% or Bust
The minutes of the December 11-12 FOMC meeting were released today. The members of the FOMC decided to add a new policy goal. They declared that their ultra-easy monetary policy would remain in force until the unemployment rate falls to 6.5%, as long as inflation doesn’t rise above 2.5%.

According to the minutes of the meeting, instead of “calendar-date forward guidance,” the Fed now will focus on “quantitative thresholds,” which “could help the public more readily understand how the likely timing of an eventual increase in the federal funds rate would shift in response to unanticipated changes in economic conditions and the outlook.”

The FOMC also announced on December 12 that the Fed will buy $45 billion a month in long-term US Treasuries starting January, with no limit on the total amount and no termination date. That adds up to $540 billion a year, though Fed Chairman Ben Bernanke said the latest version of QE would be “flexible.”

Of course, that’s in addition to the $40 billion on mortgage-backed securities per month that the Fed committed to start buying back at the September 12-13 meeting of the FOMC under QE3. The latest program, let’s call it "QE4," replaces Operation Twist, which expired at the end of last year. Under that program, the Fed swapped about $45 billion in short-term Treasuries for long-term Treasuries.
(Based on an excerpt from YRI Morning Briefing)

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