Last month, the Fed announced a plan to purchase $40 billion of mortgage-backed securities per month in an open-ended approach that would continue until the labor market improved.
While it may not sound like much, the Fed may buy over $1 trillion in MBS based on current forecasts, analysts at Capital Economics estimate.
The Fed also took the dramatic step of saying it expects to keep short-term interest rates unchanged even if the recovery strengthens. It also pushed out the calendar date for the expected first rate hike until mid-2015. Read complete analysis of Fed’s September actions
There are no pressures on the Fed for immediate action on these two fronts, economists said.
“I think they are reasonably comfortable with the market reaction [to QE3] and the way the economy has turned out,” said Michael Hanson, an economist with Bank of America Merrill Lynch.
Robert DiClemente, chief U.S. economist at Citigroup, noted that, in the wake of QE3, Citi’s financial-conditions index has reached its most accommodative reading since the Fed began easing more than five years ago. “At its current reading, the financial-conditions index is consistent with above-trend growth in final demand, an important prerequisite for stronger hiring and meeting policy goals,” DiClemente wrote in a note.