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56 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest Fed announces end of Quantitative easing Labor market improvements prompt officials to terminate the central bank's asset purchase program. t he Federal Open Market Committee (FOMC) of the Board of Governors of the Federal Reserve System announced in late October that its asset purchase program, known as QE3 (the third phase of its quantitative easing policies), will end, citing sufficient economic growth. Following months of speculation about the end of the program, the Fed made the announcement in its FOMC statement released October 29, following the 'committee's seventh of eight meetings this year. Unlike the Fed's first two QE programs, which were launched in 2008 and 2010, QE3 allowed for the unlimited purchase of mortgage-backed securities; the Fed planned to continue the stimulus program until the economy was deemed healthy enough to withstand withdrawal of the stimulus measure. The Fed suggested in its FOMC statement that U.S. economic activity expanded at a "moderate pace" since the committee's last meeting on September 17. The committee cited several factors in its assessment of the state of the economy. Since the start of September, the nation has experienced solid job gains and posted the lowest unemployment rate in six years. At the same time, labor market indicators show a gradual diminishing in the underutilization of labor resources. The housing sector has been slow to recover from the crisis of 2008, but household spending rose moderately and business fixed investment is advancing. With the committee's improved outlook for the labor market and the broader economy's underlying strength to support ongoing progress toward maximum employment in a price stability context, the committee voted to conclude the QE3 asset purchase program at the end of October. "The committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage- backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction," the FOMC's statement said. "This policy, by keeping the committee's holdings of longer- term securities at sizable levels, should help maintain accommodative financial conditions." In order to support continued progress toward maximum employment and price stability, the committee decided the current target range for the federal funds rate of zero to one- fourth of a percentage point is still appropriate. The committee said it will use a wide range of information to determine how long to maintain the current target range, including labor market conditions, inflation pressures and expectations, and financial development readings. The current target range could be in place for a while, the committee said. Increases in the rate's target range could come more quickly if the committee's employment and inflation objectives are met sooner than expected, according to the statement. leading indicators Point to moderate economic expansion ahead economists suggest weakness in the housing market poses the biggest risk to economic outlook. a gauge of leading economic indicators in the United States showed solid growth in September, suggesting moderate economic expansion to finish out the year. The Conference Board's Leading Economic Index, a mea- sure of economic developments as an indicator of future trends, increased 0.8 percent over the month of September to reach 104.4 following a downwardly revised August reading that showed no change. The index tracks a handful of component indicators, including labor market condi- tions, housing con- struction activity, and credit conditions. According to the Conference Board, most of the index's compo- nents have picked up momentum in the last half-year, suggesting moderate growth for the economy through the remainder of 2014. Nine of the 10 com- ponents contributed to the latest increase, led by improvements in the spread between long-term and short-term interest rates. The index's credit component was also a major contributor, adding 0.11 percentage points as banks showed signs of beginning to loosen credit standards. On the other hand, housing construction contributed little to September's index, adding 0.05 percentage points due to a lackluster showing of permits for new projects in that month. "Permits could come under some pressure going forward as the NAHB builder's sentiment in- dex fell five points to 54, follow- ing four straight months of gains," said Wells Fargo analysts Tim Quinlan and Zachary Griffiths in a recently released research note. "This could simply be a result of the typical buying season coming to an end; however, this was a sizable drop and may be a sign of caution going forward." "The financial markets are reflecting turmoil and unease, but the data on the leading indicators continue to suggest moderate growth in the short term," said Ken Goldstein, economist at the Conference Board. "Meanwhile, the weak advances in the housing market remain a bigger risk to the outlook than short-term financial gyrations." The Conference Board's other monthly economic indices, which measure lagging and current in- dicators, also grew in September, though at a more modest rate. The Coincident Economic Index was up 0.4 percent to 110.2, ac- cording to the group, while the Lagging Economic Index ticked up 0.1 percent to 125.1. "The financial markets are reflecting turmoil and unease, but the data on the leading indicators continue to suggest moderate growth in the short term." —Ken Goldstein, Conference Board