The release of Fed Minutes yesterday from the last Fed meeting in mid June showed the U.S. central bank will finally wind down its asset purchases of its third round of quantitative easing (QE3) in October while maintain its other monetary stimulus program that keeps short term interest rates at historic lows of .25 percent with federal funds rate “for a considerable time after” the QE3 asset purchase program ends in October and “some time after” the rate of inflation nears its 2 percent mandate and maximum employment is reached.”
By using open ended language with murky phrases such as “for a considerable time after” and “some time after” it is quite clear that voting Fed Committee members weren’t interested last month in establishing a clear date in 2015 when the central bank wants to raise short term interest rates.
The Fed Reserve will instead await more economic data to shed more light on the long term sustainability of the U.S. economic recovery before deciding when to raise interest rates, a move that has the potential to jolt the market along with raising lending costs.
Since the last Fed meeting in June, the June employment report was released and it easily beat estimates with 288,000 non-farm payroll jobs created while the unemployment rate dropped to 6.1 percent, the lowest level since 2008.
Over the past 3 months, job growth has averaged 272,000 new jobs per month.
Inflation has also been moving higher and closer to the Fed’s 2 percent inflation target, a sign that the economy is on the right track for now.