By Laya Mallela ’17On Wednesday, October 29th, the Federal Reserve announced the end to its long running bond purchase program, otherwise known as quantitative easing. After assessing the current health of the economy, the Fed concluded “there has been a substantial improvement in the outlook for the labor market since the inception of [the] current asset-purchase program,” and could safely end the program. The decreased unemployment rate and the “gradually diminishing” slack in the labor market fueled the Fed’s decision. Additionally, the decision demonstrates the Fed’s confidence in the US economy, which many economists think will grow by 3% in the third quarter.The Federal Reserve the began the bond buying program in December 2008 when interest rates were pushed to near zero and officials needed to find other ways to stimulate the economy in response to the economic downturn. The Fed in order to motivate they cycle of borrowing, spending, investment, growth and hiring began purchasing bonds and securities. The final leg of the bond purchase program began in September 2012, when the Fed planned to buy $40 billion per month of mortgage bonds and continue till the labor market improved. In December 2012, the Fed began an additional monthly purchase $45 billion in Treasury bonds, resulting in a total purchase of $85 billion per month. In January 2014, the Fed began tapering purchases by $10 billion per month, slowly ending the program without shocking markets.Officials will now turn their attention to short-term interest rates. In the coming months, the Fed will discuss when to raise interest rates and how to signal the decision to the public. Currently, the Fed assured that it will keep interest rates near zero for a “considerable time.” Most investors do not expect a rate increase till the middle of 2015. The Fed, unsure of when it will raise rates, stated, “if the job market improves more quickly than expected or inflation rises, rate hikes could come sooner, and it could wait longer if the job market or inflation is slower” (Wall Street Journal). Due to falling energy prices and downward pressure on market expectations of inflation, inflation may remain low for more time then the Fed expects. Lastly, the central bank plans to maintain its holdings of securities, loans and other assets at $4.5 trillion, replacing maturing bonds as needed. After the Fed starts to raise short-term interest rates, it plans on allowing securities to mature without reinvesting proceeds.While quantitative easing did not hurt the economy, its benefits have not been clear. The program fueled one of the longest bull markets in American history. The S&P 500 rose 131% since November 2008 and borrowing costs declined. However, the yield on the 10-year treasury has declined between 2.96% and 2.32% during the time period. Additionally, while the unemployment rate has declined, much of the decline is a result of people leaving the workforce. Supporters of the program believe low interest rates have allowed for job growth, but the two variables are not directly linked. Some economists believe the program was inconsequential and others believe it only helped financial markets, leaving other sectors of the economy in the lurch. On a positive note, the worst fears of bond buying were not realized. Inflation did not skyrocket and has remained unchanged at 1.5% since September 2012. The dollar did not decline heavily and gold prices did not rise rapidly.When the program ended, markets did not show much alarm and were little affected. The Fed’s clear plan to end quantitative easing helped ensure that markets were not shocked by the program’s close. Currently, the Fed’s plan to raise interest rates is ambiguous as to not rattle markets. However, some economists believe the Fed should announce a clear plan to ensure investors that the decision to raise interest rates will be based on economic health, not a set timeline. For the time being, the Fed should maintain an ambiguous approach. The US economy has been exhibiting positive signs of growth, but overseas growth has slowed, which may eventually affect the US economy. An ambiguous approach towards raising interest rates allows the Fed flexibility in its actions and it will raise rates when the economy has had sufficient growth.Sources:http://online.wsj.com/articles/u-s-government-bonds-little-changed-before-data-1415025716http://online.wsj.com/articles/fed-ends-bond-buys-sticks-to-0-rate-for-considerable-time-1414605953http://www.nytimes.com/2014/10/30/business/federal-reserve-janet-yellen-qe-announcement.htmlhttp://www.reuters.com/article/2014/10/29/us-usa-fed-idUSKBN0II20O20141029