They didn’t call it QE Infinity for nothing: In a surprising move, the Federal Reserve announced this afternoon it won’t slow the pace of its quantitative-easing program, which purchases bonds on the open market. The committee said in its statement today that it had “decided to await more evidence that progress [in the economic recovery] will be sustained before adjusting the pace of its purchases.” Stocks, which have soared as this round of money printing has continued, declined significantly in June when Fed chairman Ben Bernanke indicated that he thought the pace of purchases would slow in the fall, but over the course of the summer, he tried to allay concerns about the coming restraint, noting that the schedule for “tapering” the program was based on the Fed’s often-optimistic forecast, and that labor market conditions were weaker than the unemployment rate indicated. That last issue was reinforced a couple weeks ago, when the August jobs report showed the unemployment rate had declined but the pace of job creation did too.
The Fed had been expected to slow them by $10 billion or more on a monthly basis (the current rate of purchases is $85 billion a month). The Fed continues to believe that the labor market and the broader economy is improving, and haven’t changed their basic assessment, but noted that “on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.” If they’re correct in that assessment, continuing asset purchases may not be the best way to address it, but it is the tool they’ve deployed, and they’re right not to let up on it.
UPDATE: About an hour after the announcement, the S&P 500 hit an all-time record high, surging almost 1.5 percent to about 1,730.