At the end of the FOMC meeting, the Fed announced plans for additional stimulus, aka Quantitative Easing 2. Here's an excerpt from the Fed's press release that describes the plans for QE2:
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.
The rest of the press release is similar to past ones. There is no change in interest rates, and they continue to say the same line of "exceptionally low levels for the federal funds rate for an extended period." The only vote against this policy remains Thomas Hoenig. The press release included Hoenig's objections:
Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.
This AP article via CNBC has a good overview of what QE2 is suppose to accomplish and what could go wrong. QE2 is suppose to lower interest rates even more which in theory is suppose to encourage more borrowing and spending by both consumers and businesses. It's also suppose to encourage individuals to invest in stocks and encourage businesses to invest in new equipment. All of that should in theory improve economic growth.
The AP article also points out what problems that QE2 may cause. One that Hoenig mentioned is the risk of financial imbalances or bubbles. Another problem is the falling dollar. As the article mentioned, it causes prices to rise on what we buy from other countries. Finally, it's quite possible that QE2 won't work. If two years of record low interest rates haven't helped enough, perhaps the nation's economic problem can't be fixed by monetary policy.
Update 11/04/2010: Bernanke responds to QE2 critics in a Washington Post op-ed: Aiding the economy: What the Fed did and why.
Future FOMC Meetings
If you want an idea about what the market thinks regarding when the Fed will start hiking rates, check out this CME Group FedWatch tool. It shows you the probability of rate hikes in the future FOMC meetings based on the 30-Day Fed Funds futures prices. The probability of a higher Fed funds rate by next June is shown to be only 3.2%. That's down from 17.9% after the last Fed meeting in September. The chance of a rate hike by next November is only 18.6%.
The last FOMC meeting for 2010 is scheduled for December 14, and the first meeting for 2011 is scheduled for January 25-26.