Six years to the week after the biggest US bank bailout, the Federal Reserve ended its quarterly two-day meeting by keeping interest rates stable and detailing its intentions to exit from a five-year-long stimulus plan.



Interest rates will remain near zero for a “considerable time,” the central bank said. Fed chair Janet Yellen said the term “considerable time” is not a “calendar concept” but instead will adjust to economic conditions.

“It’s important for markets to understand that there is uncertainty and the [Fed interest rate] statement is not a firm promise about an amount of time,” Yellen said.

As to when that improving economy might occur, the horizon appears to be distant, extending past the next presidential election. Yellen said households are still having trouble borrowing money because of high bars to credit, and that household debt levels are holding back spending – factors she said would “dissipate over time, but very gradually.”

She also predicted that unemployment will return to normal levels in 2016, and won’t fall below normal until 2017.

“The labor market is still struggling to recover,” Yellen said to reporters on Wednesday. “There are too many people who want jobs but cannot find them … too many people who are not searching for a job but would be if the labor market were stronger.”

Yellen also mentioned that economic growth, while positive, has “been nonetheless slow compared to recoveries from past recessions.”

To many investors, the most important part of the Fed’s announcement on Wednesday was its first detailed exit plan from its multi-trilllion dollar economic stimulus, known as quantitative easing.

Quantitative easing, or QE, began in the fall of 2008 with the Fed’s purchase of over $600bn in mortgages. At the time, the US financial system had come close to collapse and the unemployment rate was 8.1%.

Whatever its early advantages, the program, which poured billions of dollars into mortgage and US Treasury bonds, has come under criticism from Wall Street investors who came to see the bailout as extended meddling. The Fed has been winding down the program since December.

The process will take place, as the Federal Reserve said in a supplemental policy document, “in a gradual and predictable manner.”

The Fed has been reducing purchases in chunks of about $10bn each month, reducing spending from $85bn a month in December to about $25bn currently. Yellen said the Fed will reduce its bond buying to $15bn next month, and may end the program altogether then.



The Fed will not, however, sell mortgage bonds backed by housing giants Fannie Mae or Freddie Mac.

Although the central bank did not say why those bonds would be preserved, it’s likely to limit panic: the market frequently gets spooked when any large sale of securities occurs, particularly if they’re connected to embattled companies like Fannie Mae and Freddie Mac.

The Fed said it will stop reinvesting in bonds after it raises its target range for interest rates. The target rate will rise when “economic conditions and the economic outlook warrant,” the bank said.

The central bank also said does not intend to re-enter a stimulus plan like quantitative easing, nor does it intend to buy any more mortgage bonds in the future.

The Fed has traditionally had no involvement in buying mortgage bonds. It started doing so after the financial crisis in order to help banks clear bad mortgages off their books – with the intention that the banks would then open the spigot for lending to people and companies.

Lending is still tight, however: a report by the San Francisco Fed last month was titled “Long Road to Normal for Business Lending” and said that loans, while available, are “not cheap”.

The Federal Reserve appeared eager to close the chapter on its stimulus plan as soon as economic conditions improve.

“The committee intends that the Federal Reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively, and that it will hold primarily Treasury securities, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy.”

While some commentators focused on the minutiae of the Fed’s phrasing on whether interest rates would rise in a “considerable time,” the anniversary of the fall of Lehman Brothers highlighted the Fed’s long-ignored role as a financial regulator.



Treasury officials are still defending the bailouts. Assistant Treasury secretary for financial institutions Amias Gerty told the Exchequer Club this week:

”There is a commonly held belief that there is an inherent tradeoff between financial stability and economic growth. The arguments around this tradeoff need to accommodate the example of the crisis we just lived through – in 2008 we learned what an unstable financial system can do to economic growth.”



And to mark just how far the discourse has come since the bailouts, bank CEOs now freely talk about sizing down the banking system.



Speaking at the National Press Club, Wells Fargo CEO John Stumpf said on Wednesday “There should be no company that is ‘too big to fail’” and said financial wrongdoers “should be held accountable”.