On October 30, 2014, Jim Puzzanghera and Don Lee write in the Los Angeles Times:
In the dark days of the 2008 financial crisis, the Federal Reserve began buying tens of billions of dollars in bonds each month in a controversial, last-ditch effort to stimulate the economy.
Now, nearly six years and more than $4 trillion in purchases later, central bank policymakers declared Wednesday that the economy is strong enough for the Fed to end the unprecedented program.
In their statement following a two-day meeting, Fed officials gave their best assessment of the labor market in years, citing the “solid” job gains in recent months and the faster-than-expected drop in the unemployment rate, which fell to 5.9% in September.
“The numbers in the economy are good enough to justify it,” said Alice Rivlin, a former Fed vice chair and now a visiting professor at Georgetown University.
Still, amid worries about a slowing global economy, edginess in financial markets and still-weak housing activity, the Fed maintained its commitment to keep its benchmark interest rate near zero for a “considerable time” following the final $15-billion purchase of Treasury notes and mortgage securities this month.
The Fed’s key short-term interest rate has been at rock bottom since December 2008, and the focus in the markets now shifts to when Fed Chairwoman Janet L. Yellen and her colleagues might begin to raise it.
Most see that first rate hike coming in the middle of next year, but some analysts have pushed those expectations to later next year because of the uncertain growth prospects in major economies around the world.
The Eurozone has stagnated, Japan’s momentum has stumbled and China’s growth has slowed. That has weakened commodity prices and held down long-term interest rates, and it has left the U.S. as the primary engine of global growth. Economists expect the American economy to show a healthy expansion of about 3% in the second half of this year and next year.
The conclusion of the bond-buying, which had a relatively stronger effect on California, followed a carefully scripted plan by the Fed to give investors and markets plenty of time to prepare for the removal of the stimulus.
Stock markets took Wednesday’s news in stride. The Dow Jones industrial average seesawed after the midday Fed statement but ended down only 31 points, or less than 0.2%. Broader indexes fell similarly.
Most economists believe the stimulus initiative, known as quantitative easing, boosted the recovery from the Great Recession. Two-thirds of the respondents polled this summer by the National Assn. for Business Economics said the program has been a success.
The purchases helped resuscitate the housing market by pushing down mortgage rates to historic lows, a benefit especially in pricey housing markets such as the Bay Area and parts of Southern California.
