The FOMC statement and QE-Lite. Where do we go from here?

Earlier today, the Federal Reserve issued their FOMC statement. All members, except for Hoenig, voted for a policy to keep interest rates near zero to 1/4 percent and "reinvest principal payment from agency debt and agency mortgage baked securities in longer term Treasury securities". In basic terms, the Fed realizes that the economy is moving at a snails pace, and will not allow its portfolio to decrease and instead keep the balance sheet steady at $2.06 trillion. Bernanke's talk of continuing monetary pullback has reversed; the Fed has simply run out of tools and will continue investing at a steady rate.

Many investors speculated a new QE2 (quantitative easing part two), but this seams more like a QE-lite - nothing big, but nothing small. US equities ended the day in a range as markets took a cautious approach to the Fed announcement. Meanwhile, the US dollar took a serious tumble intra-day against a basket of securities, but is now regaining strength. Investors are coming to their senses that this is just QE-lite, but the Fed's confirmation that the "pace of the recovery in output and employment has slowed in recent months" made investors a bit nervous. Gold inched up slightly in response to the panic. In the long run, the US is likely to experience very slow growth.

As I stated in the previous post, the Fed can go on with QE-lite, but it all comes down to employment and output, mentioned in the first sentence of the FOMC statement, highlighting its significance. The Financial Times has a really good point about the Beveridge Curve; proving that the labor market is experience a demand/supply issue. The public is lacking skills that are in demand, and the economy is not providing much of an incentive to boost employment. There needs to be focus on this while the Fed launches QE-lite.