Fed maintains QE pace, prepared to alter as economy evolves

Future Inflation

The committee also said it “anticipates that inflation over the medium term likely will run at or below its 2% objective.”

Policy makers such as St. Louis Fed President James Bullard have voiced concern about inflation running below their longer- run target of 2%. Their preferred gauge of inflation rose 1% from a year earlier in March, and Bullard was one of three regional Fed bank presidents who said last month that disinflation may warrant stepped-up stimulus.

Bullard has proposed the Fed alter purchases by $10 billion to $15 billion per meeting depending on the outlook for the economy. Fed Vice Chairman Janet Yellen and New York Fed President William C. Dudley have backed the idea of adjusting purchases, without providing an estimate of how much to shrink or enlarge them at each step.

The purchases will remain divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities. The central bank also will continue reinvesting the proceeds from maturing debt, according to today’s statement.

‘Financial Imbalances’

Kansas City Fed President Esther George dissented for the third meeting in a row, saying the continued “high level of monetary accommodation increased the risks of future economic and financial imbalances.”

None of the 47 economists in an April 25-29 Bloomberg survey expected the central bank to alter the pace of purchases at today’s meeting. Only one of the economists surveyed expected the Fed to expand purchases, and the others said the Fed’s first move would be to shrink or end them entirely.

Fed officials are seeking to avert a repeat of the last three years, when a summer slump scuttled optimism about the economy’s strength. In each of those instances, the Fed planned to end stimulus programs early in the year, only to boost accommodation after growth lagged behind its forecasts.

The economy expanded at a 2.5% annualized rate in the first quarter, the Commerce Department said last week. The gain followed a 0.4% fourth-quarter advance, and it trailed the 3% gain that was the median estimate of 86 economists surveyed by Bloomberg.

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