From the press release, the FOMC took various actions to address problems like increased inflations, unemployment, and reduced labor market. Additionally, the committee decided to adjust the federal funds target range to between three-quarter and one percent ( Chang & Hanson, 2016 ). It resolved not to change the existing policies regarding the reinvestment of the principal payments made from the holdings agency mortgage and agency debt securities.
The FOMC decided to take the action so that they could address the situation and restore public confidence. In the case of federal funds rate, it wanted to ensure that the monetary policy in place remains accommodative to all people and organizations undertaking various businesses. The action would also restore the inflation rate to two percent and strengthen the labor market conditions ( Chang & Hanson, 2016 ). Such conditions were met after the committee assessed information relating to labor market conditions, inflation expectations and pressures, and the status of both international and financial developments. Maintaining the reinvesting policy would enable the committee to hold sizeable long-term securities and at the same time maintaining the accommodative financial conditions in the market.
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The actions would have the effect of stabilizing the stock market as compared to the previous status before the actions were taken by FOMC. In essence, the action guaranteed that the monetary policy remained accommodative to all the investors in the market without discrimination. Subsequently, the stock market is expected to yield some profits to the investors ( Chang & Hanson, 2016 ). Besides, more investors would venture into buying and selling a share in the stock market because the reinvesting policy was maintained to sizeable long-term securities held in the stock market. The interest rates were maintained at the same level without any increase of decrease. In this case, the FOMC wanted all the investors in the market to benefit from the stock market without incurring any losses or being disadvantaged.
Chang, A. C., & Hanson, T. J. (2016). The accuracy of forecasts prepared for the Federal Open Market Committee. Journal of Economics and Business , 83 , 23-43.