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Informing the public about the Federal Reserve

Why do the U.S. economic recovery and labor market require ongoing monetary policy support through the purchase of longer-term Treasury securities and agency mortgage-backed securities?

The Federal Reserve conducts monetary policy to foster its statutory objectives of maximum employment, price stability, and moderate long-term interest rates. Since late 2008, the Federal Open Market Committee (FOMC) has maintained a highly accommodative stance of monetary policy intended to support economic recovery and ensure that inflation, over time, remains stable and near its longer-run goal of 2 percent. In December 2008, the FOMC reduced its target for the federal funds rate, its usual policy tool, to near zero percent. With policy interest rates at their lower bound, the Committee has used alternative policies since that time, including large-scale asset purchases and forward guidance regarding the path of the federal funds rate, to provide additional stimulus for the economic recovery. The Committee undertook a series of asset purchase programs intended to put downward pressure on longer-term interest rates and make broader financial conditions more accommodative. In late 2012, the Federal Reserve began a flow-based purchase program under which it purchased mortgage-backed securities at a rate of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.

In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of this program, the Committee decided at its December 2013 meeting to modestly reduce the pace of its asset purchases beginning in January 2014. At its subsequent meetings in January, March, April, June, July, and September of 2014, the Committee decided to make further measured reductions in the pace of its asset purchases. At its meeting in October 2014, the Committee decided to conclude the flow-based program at the end of the month. The Committee's sizable holdings of longer-term securities should help to support the recovery by maintaining accommodative financial conditions.

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Last update: November 3, 2014