One Month Post-QE3, Federal Reserve Maintains Status Quo

The Federal Open Market Committee made no policy changes during its October meeting.

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Acknowledging a frustratingly slow economic recovery, the Federal Reserve Wednesday announced that it continues to wait (and print money) patiently.

The Federal Open Market Committee, which makes decisions on the bank's monetary policy, at the close of its latest meeting reiterated its intention to continue the third round of quantitative easing it announced in September, known commonly as "QE3." Under that program, the Fed is purchasing $40 billion in mortgage-backed securities each month in an attempt to boost the economy, particularly the housing sector. The committee has left the timeline for QE3 open-ended, saying if the jobs situation doesn't "improve substantially," it would continue the monthly purchases and pursue other policies as well, a move that has led some to refer to the policy as "QE Infinity."

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The Fed also Wednesday repeated that near-zero interest rates are likely to be warranted until at least mid-2015. It is additionally continuing "Operation Twist," in which it extends the maturity of the assets on its balance sheet, selling off shorter-term securities and buying longer-term securities.

The goal of all these policies is to stimulate an economy that has grown at a "moderate pace," as the Fed put it in a statement released after the meeting, ticking off the economy's current strengths and weaknesses: slow employment growth, a high unemployment rate, and slower business investment continue to drag on growth, but household spending and the housing sector have improved.

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There are some worries that easing will lead to inflation, but the committee seems to remain unconcerned for now. In its statement, the Fed acknowledged that though higher energy prices have recently ratcheted up overall price level, the committee believes that "inflation over the medium term likely would run at or below its 2 percent objective."

QE3 has received a lot of attention since it was announced, but is it working?

"It's too soon to tell," says John Canally, investment strategist at LPL Financial. And if it does work, he says, it is only going to be a "nudge" to the economy.

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That's because there are plenty of factors weighing on economic growth right now: the looming fiscal cliff and a continuing crisis in Europe, for example. The Fed has virtually no control over any of these problems.

In the current environment, particularly with the fiscal cliff holding back hiring and investment, the Fed's powers are limited, says one analyst.

"Anything the Fed does is marginal at best," says Greg McBride, senior financial analyst at Bankrate.com. "It's fiscal policy that's leading to the uncertainty in the market, and that's overshadowing the monetary policy actions of the Fed."

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Still, the bank must take what action it can, says Canally.

"The Fed's not going to do nothing. I think that's how you have to judge this," he says.

As for how long QE3 continues, that depends on what the committee members consider sufficient improvement in the job market. One economist offers a hypothetical.

If the Fed is waiting for 7 percent unemployment, QE3 could last well into 2013, says Adolfo Laurenti, deputy chief economist at Mesirow Financial.

"We are at 7.8 [percent]. We need a while to get there, then you need to dip below 7 percent and be consistently below 7 percent," he says. "At the soonest, it would be six months for that to be the case."

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Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter @titonka or via E-mail at dkurtzleben@usnews.com.