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September 2014 Update from the FOMC

As I mentioned in my post last week, the Federal Reserve Open Market Committee (FOMC) commenced its sixth meeting of the year on Tuesday, September 16. At the end of the two-day meeting, the Committee provided an update on U.S. monetary policy.

An important thing to know about the outcome is that “the Committee decided to make a further measured reduction in the pace of its asset purchases.” This is a step towards ending the policy known as quantitative easing.

So what does it mean?

Well, under the plan, the Federal Reserve will decrease its purchases of Treasury bonds from $15 billion to $10 billion in October, while cutting back purchases of mortgage-backed securities from $10 billion to $5 billion. The Federal Reserve will make no purchases in November.

During the meeting, the Committee maintained its position that interest rates are likely to remain near zero for a “considerable time” after the buy-back program ends. In a press conference going through the decisions made, Chairwoman Janet Yellen emphasized that the “considerable time” phrasing is “highly conditional” and “linked to the committee’s assessment of the economy.” She also underscored that the exit plan “is in no way intended to signal a change in the stance of monetary policy.”

If you’re interested in learning more about the September meeting, the full statement of the Federal Reserve’s policy can be viewed on the its website. You can also get some more background about the Federal Reserve Open Market Committee meetings in general by checking out the post from last week.