On Sept. 18, the Federal Open Market Committee issued a statement saying that they would not yet begin to reduce the $85 billion monthly debasement of the US dollar, which is carried out by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term treasury securities at a pace of $45 billion per month. The Committee also decided to keep the target range for short-term interest rates at 0 to 0.25 percent for at least as long as the unemployment rate remains above 6.5 percent.
Stock markets reacted positively on the afternoon of Sept. 18, with the Dow Jones Industrial Average gaining 134 points (0.9) to 15,659, a record high. The S&P 500 index rose 18 points (1.1%) to 1723, also a record high. The Nasdaq Composite Index rose 28 points (0.8%) to 3774, its highest level since 2000. Stocks had a modest correction on Sept. 19, while gold had its largest one-day gain (4.7%) since September 2008, rising $61.70 to $1,369.30. Bitcoin did not appear to be significantly affected by the statement, with its value continuing its usual level of volatility.
Other details released on Wednesday show that the Fed's expansion of the monetary supply is not having their desired effect of increasing prices at a rate of 2 percent per year, with their latest projections predicting increases of 1.2-1.3 percent for 2013, 1.5-1.7 percent for 2014, 1.7-2.0 percent for 2015, and 1.9-2.0 percent for 2016. The projected annual growth in gross domestic product (GDP) for 2013 and 2014 was revised downward from the June projection, with the 2013 projection dropping to 2.0-2.3 percent from 2.3-2.6 percent, and the 2014 projection dropping to 2.9-3.1 percent from 3.0-3.5 percent.
These projections would seem to indicate that the current policies of the Fed are not helping the economy to recover, and are merely sustaining it artificially. The Keynesian school of economics explains this through the concept of a liquidity trap, while the Austrian school of economics explains this through the concept of malinvestment.