Fed stays the course on QE2, interest rates

The Federal Reserve is essentially staying the course on monetary policy, with its policymaking outfit announcing Wednesday that it would end its bond-buying initiative on time later this year and would hold the line on a key short-term interest rate.

In a widely awaited event, Ben Bernanke, the Fed chairman, is set to discuss Wednesday’s release from the Federal Open Market Committee this afternoon in a first-of-its-kind news conference.

The Fed’s current $600 billion round of bond-buying, known as quantitative easing, has come under some criticism from Republicans, who fear it could lead to higher inflation. 

Some members of the FOMC have also expressed skepticism about this second go-round of quantitative easing, which has been dubbed QE2. But the committee voted unanimously to stick with the bond buying and to end it, on time, by the close of June. 

“The committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter,” the FOMC statement said. 

The FOMC also decided to keep the short-term federal funds rate at 0 to 0.25 percent, where it has stood since late 2008, and reiterated Wednesday that it expects the rate to remain at “exceptionally low levels” for some time. 

As it did in a statement released last month, the committee also noted that both commodity prices and inflation have increased in recent months. But the policy-making group also expressed confidence that longer-term inflation expectations had essentially remained level, and said the economy was recovering at a “moderate pace.”

Sen. Mark Kirk (Ill.) is among the GOP lawmakers to cast doubt on the current round of quantitative easing, telling Bernanke in a recent letter that the effort may need to come to an early end because of inflation concerns.