Recent economic reports revealed improvement in the U.S. labor market, despite elevated unemployment, a recovering housing market and increased consumer spending.
Inflation, however, has remained lower than expected, and the Federal Open Market Committee—which consists of the Fed’s Board of Governors, New York Fed president and four regional Fed presidents—said it would continue purchasing $40 billion per month in mortgage-backed securities and $45 billion per month in longer-term Treasury securities “to support a stronger economic recovery and to help ensure that inflation…is at the rate most consistent with its dual mandate [to foster maximum employment and price stability].”
The Fed said “a highly accommodative stance of monetary policy will remain” for a considerable time after the end of the asset-purchasing program but also said it is prepared to increase or reduce its rate of purchase to adjust to changes within the labor market or inflation.
Jeb Hensarling, chairman of the House Financial Services Committee, criticized the Fed’s move, saying the nation’s economic problems could not be solved through additional stimulus.
“Like a patient who has been administered too many antibiotics, the economy is less and less responsive to the Fed’s continued monetary stimulus,” Hensarling said. “America is nearly five years into the Fed’s historically unprecedented interventionist policies and there is very little gain to show for it. Twelve million Americans remain unemployed — a number roughly equal to the entire population of Ohio. Many others are so discouraged they have given up looking for work, and our so-called recovery is the weakest in modern times. If the Fed wants to help the economy, it needs to adopt a more predictable, rules-based policy that aims for long-term price stability. That is the policy that will promote long-term economic growth.”
FOMC members who voted in favor of continuing the bond-buying program were Federal Reserve Board Chairman Ben Bernanke and Vice Chairman William Dudley, as well as board members James Bullard, Elizabeth Duke, Charles Evans, Jerome Powell, Sarah Bloom Raskin, Eric Rosengren, Jeremy Stein, Daniel Tarullo and Janet Yellen.
Board member Esther George voted against the action amid concern that the continued accommodative monetary policy “increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”