US Federal Reserve Goes For Subtle QE

Excerpt from the FOMC Statement (bold emphasis mine)

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.

The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.

Read the entire statement here

So the Fed’s support comes in a cryptic template:

QE 2.5 (maintain reinvesting of principal payments) + ensured a prolonged low interest rate regime by identifying a specified period (at least through mid-2013) instead of “extended period” + proposed an open ended action on the Fed’s balance sheet.

All these translates to, as Bob Wenzel of Economic Policy Journal writes,

The Fed will print whatever quantity of money is necessary to prop up the Treasury market and stock market. The Fed is in full inflation mode.

With growing dissent from FOMC members, the Fed’s intervention appears to have transitioned to communication or language management but still headed for the same direction--monetary easing (inflationism).