The Federal Open Market Committee’s bond-buying program will end this week, members announced Wednesday at the end of a two-day meeting, citing “substantial improvement” in the labor market outlook and underlying strength in the broader economy.
But FOMC members said keeping the federal funds rate low, in the zero to 0.25% target range, “remains appropriate,” unless incoming information indicates “faster-than-expected progress” toward employment and inflation objectives, the members said in a statement. Narayana Kocherlakota, Federal Reserve Bank of Minneapolis president and CEO, was the lone dissenter, arguing to continue the monthly asset purchase program and to keep the current federal funds rate low until the inflation outlook returns to 2%.
While the members’ position reflected little change since their September meeting, “the market had a change of heart” about when rates will begin rising, said Zach Pandl, senior interest rate strategist with Columbia Management. “You are having a large re-pricing at the front end of the yield curve. Today’s FOMC meeting reaffirms that the committee is on pace to raise rates sometime in the middle of 2015, and the main reason is their confidence in the labor market.”
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