The Fed just announced a sizable "open-ended" quantative easing program, citing concerns that, without policy action, the economy might be too weak to "generate sustained improvement in labor market conditions." It also said it would keep interest rates low through 2015. For context, Tim Duy set the Fed's bar yesterday:
[T]he Fed needs to link open-ended policy explicitly to the economy, thereby removing the uncertainty associated with the previous arbitrary programs. I think anything less should be viewed as a dissappointment.
Weisenthal explains how today's Fed plan achieved this:
The Federal Reserve decision is out, and it's a biggie…. Whereas in the past the Fed always announced a specific amount of QE, this time there will be no stop until the Fed is happy with the pace of recovery.
Yglesias zeroes in on the guidance (i.e. the explicit plan to keep rates low):
But there's something much much much more important here than the numbers. It's the guidance…. The key thing is that they're no longer saying that accommodative monetary policy is conditional on the recovery being weak. Instead, interest rates will stay low for a while even after the economy recovers. In other words build that apartment building right now.
Eyder Peralta translates the Fed's rationale:
Remember the Fed has a dual mandate from Congress: Keep inflation and the unemployment rate in check. This is also an open-ended commitment on the part of the Federal Reserve, which said it was not concerned about inflation.
Brad Plumer, meanwhile, reviews the track record of the QE1 and QE2, giving the theoretical context of the "open-ended asset purchase" tack:
Instead of saying “we’re going to buy up $600 billion in assets and hope that works,” the Fed could say something like, “we’re going to keep buying up assets, and we’re not going to stop until either inflation hits 3 percent or unemployment sinks below 7 percent.” The idea is that this would shift expectations and bolster confidence about the future course of the economy — much as Bernanke did back in the dark days of 2008 — and economic growth would leap as a result.