FOMC will ride the asset purchase horse

While the economic outlook was seen as improving, members generally felt that the change in the outlook was not sufficient to warrant any adjustments to the asset-purchase program, and some noted that more time was needed to accumulate information on the economy before considering any adjustment. Members emphasized that the pace and overall size of the purchase program would be contingent on economic and financial developments; however, some indicated that they had a fairly high threshold for making changes to the program.

FOMC comments.

The Fed is not willing to change their asset purchase program. They do not see enough signs of growth. This is in contrast with many economists who view that US growth will be stronger in 2011.

The monetary policy issue of 2011 will be the timing of any end to asset purchases. The Fed will have to find a glide-path for cutting purchases at the exact moment when the economy ill be able to stand on its own and not return to recession. The current view is that economic growth is not sustainable or at best growth cannot be at a pace that will significantly reduce unemployment. The output gap cannot be closed in a manner that will help employment.

The Taylor Rule does not show any signs that tightening should occur so the economy will continue to depend on asset purchases.