End of Asset Purchases
By Isaac Cohen*
At its last meeting, held in Washington DC on June 17-18, the central bank’s Federal Open Market Committee decided to end the purchase of assets, which it has gradually reduced throughout the year.
The reduction of asset purchases started with the year, when they stood at $85 billion per month. Since then, these purchases have decreased by $10 billion every month and in July they stood at $35 billion. Therefore, the Committee decided to terminate the program with two additional purchases of $10 billion and a final of $15 billion in October.
This concludes the application of one of the most extraordinary measures adopted by the Federal Reserve and other central banks, such as the Bank of England and the Bank of Japan,. to counter the profound recession which started in the United States in 2008.
The termination of asset purchases recognizes the strength gained by the economic recovery. However, as stated in the meeting´s minutes, it has “no consequences for the eventual decision about the timing of the first increase in the federal funds rate.”
It is the strength of the recovery which opens the door to interest rate increases, the other monetary policy measure adopted to stimulate the economy after the Great Recession. Although the central bank has not yet indicated when exactly these will start, some observers expect interest rates will start climbing by the middle of next year.
*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC.