http://www.nytimes.com/2014/10/30/business/federal-reserve-janet-yellen-qe-announcement.html 2014-10-29 19:49:00 Fed Announces End to Bond-Buying, Citing Job Gains The central bank noted recent weakness in some gauges of inflation expectations, but it said the likelihood of persistently low inflation had diminished. === WASHINGTON — An upbeat The Fed, But it added that it still planned to keep short-term interest rates near zero for a “considerable time.” The statement from the Fed’s policy making committee, led by Janet L. Yellen, the Fed chairwoman, acknowledged the recent weakness in some measures of inflation expectations and the drop in energy prices. But it said the likelihood of persistently low inflation had actually diminished since earlier this year. The Fed noted that survey-based measures of expectations, which are less subject to distortion, had remained relatively stable. There was one dissent. Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, voted to continue the bond-purchase program, citing the sluggish pace of inflation. He also called for the Fed to commit to keeping short-term interest rates near zero until officials agreed that annual inflation would rise to 2 percent. The Fed’s decision was greeted with calm on Wall Street, with major indexes falling slightly after the announcement. By contrast, when Ben S. Bernanke, then the Fed chairman, “The exit protocol has been so well documented for the last nine months that the market has fully priced it in,” said Barbara J. Cummings, who manages a $3.5 billion fixed-income portfolio for Boston Private Wealth Management, a new subsidiary of Boston Private Bank & Trust Company. “I don’t anticipate any movement. I feel as though this is one meeting where they almost don’t need to hold it because they have made it perfectly clear.” The decision caps a six-year period during which the central bank has expanded its holdings of Treasury and mortgage-backed securities to almost $4.5 trillion, from less than $1 trillion in mid-2008. The Fed has paused its stimulus campaign several times since the financial crisis only to conclude that the economy needed more help. But officials say they are confident that the current level of stimulus is sufficient. Through September, employers added an average of 227,000 jobs a month, and the The Fed’s exit from quantitative easing comes as the European Central Bank is moving in the opposite direction in an increasingly urgent attempt to prevent the eurozone from slipping into recession. On Monday, the E.C.B. disclosed the first purchases in a planned campaign to buy private sector assets, a kind of entry-level quantitative easing. But the amount the central bank bought, just 1.7 billion euros worth, was considered a drop in the bucket by analysts, and fed speculation that the E.C.B. would soon be forced to take more substantive steps. Recent Fed policy has generally been good for Europe. The stronger United States economy, as well as the prospect of higher interest rates, has prompted investors to trade in their euros for dollars. A weaker euro makes products from the eurozone less expensive for foreign customers and helps increase sales of European products. The Fed has tolerated the rise in the dollar against the euro, reasoning that the United States has an interest in a healthy eurozone economy. The United States and the European Union are each other’s largest trading partners. The Fed next plans to enter a holding pattern, a final phase in which it will maintain the size of the bond portfolio and keep short-term interest rates near zero, until officials decide that the economy no longer needs the help. For more than a year, a majority of Fed officials have pointed steadily to the middle of 2015 as the most likely time for a rate increase. Some officials want the Fed to explain more clearly how it will decide when the time has come. Others, however, are concerned that changes in the statement will be interpreted prematurely as evidence that the Fed is pulling back. Carl R. Tannenbaum, chief economist at Northern Trust, said that he hoped the Fed would emulate the clarity of its retreat from bond-buying as it moved toward raising interest rates. “I do think this has been a success story,” he said. “I’m hoping that when the time comes to raise interest rates that they’ll do an equally clear job of foreshadowing that.” Just a few months ago, a growing number of Fed officials were expressing concern that the central bank might need to start raising rates in the spring. But inflation has remained persistently sluggish. Most Fed officials predicted in September that in the next two years, inflation would not reach the 2 percent annual pace the Fed regards as most beneficial for the economy. John Williams, president of the Federal Reserve Bank of San Francisco, said this month that he saw a greater chance that the first increase would be delayed. Asset prices continue to reflect even greater pessimism among many investors. This is partly a distortion caused by the high demand for Treasuries as worried investors move money from Europe to the United States. But some analysts say it also reflects a widespread view among investors that the Fed is once again overestimating the economic recovery. Torsten Slok, chief international economist at Deutsche Bank Securities, said he did not expect much of a reaction from financial markets even if the Fed suggested that its economic outlook had improved. “It will take more time,” he wrote in a note to clients on Tuesday, “for the market to shake off the bearish narrative that has been so widespread among fixed-income investors over the past six years.” Ms. Cummings said it was more likely that the Fed was wrong. “I do think they’re overly optimistic,” she said. “The market and the Fed are definitely saying two different things. And the market is right. It usually is.”