Fed holding on to US$4t amassed since QE started

Washington

QUANTITATIVE easing may turn out to be a gift that keeps on giving for the US economy.

As the Federal Reserve prepares to end its third round of bond buying this week, the central bank plans to hang on to the record US$4.48 trillion balance sheet it has accumulated since announcing the first round of purchases in November 2008.

That will continue to keep a lid on borrowing costs, helping the Fed lift inflation closer to its target and providing support to a five-year expansion facing headwinds abroad, from war in the Middle East to slowing growth in Europe and China.

Holding bonds on the Fed's balance sheet limits the supply of securities trading on the public markets, which helps keep prices up and yields lower than they otherwise would be. That provides stimulus to the economy just as a cut in the Fed's benchmark interest rate would, according to Michael Gapen, a senior US economis…