"To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month", the Fed announced.
The Fed however, did not explicit for how long this program will extend but it stressed that future policy action will depend on how economic conditions develop, particularly the unemployment rate. This is a very dovish approach for the bank, it seems like Bernanke is going all-in taking an aggressive QE program.
"The $40bn of MBS purchases per month is a bit smaller than we would have expected, since that works out at only $480bn per year. But the Fed pledged to continue those purchases until it judges that the outlook for the labour market has improved substantially", says the Capital Economics team.
"That is deliberately vague but, if we assume that it means until the unemployment rate gets down to 7% and that the Fed's new forecasts will show the unemployment rate won't get down to that level until some time in 2015, then the Fed today has effectively pledged to buy $40bn of MBS for three years, which adds up to $1,440bn", adds Capital Economics.
Meanwhile, the ING Bank notes that by linking QE directly to labor market performance "the Federal Reserve's forecast for unemployment will become more important in terms of gauging what the Fed is likely to do at upcoming meetings".
Along with the new bond-buying program, the Fed will continue with the Operation Twist program through the end of the year. "These actions, which together will increase the Committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative", Fed says.
The Fed also extended the period for which it anticipates exceptionally low levels of fed funds will likely be warranted to "at least mid 2015" from "at least through late 2014". There was only the one usual dissenter: Jeffrey Lacker.