Easing off: The Fed decides to pull back on bond buying

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The Federal Reserve said Wednesday that it will begin to phase out quantitative easing, its bond-buying program, in January. That’s good because it’s hard to say if the program achieved results.

Next month the Fed will buy $10 billion less in bonds from banks than the $85 billion per month it has been purchasing since 2008. Then, depending on the economy, it might reduce its purchases in subsequent months. At the same time, outgoing chairman Ben S. Bernanke announced that the Fed intends to continue to keep short-term interest rates low.

Mr. Bernanke has led the Fed since 2006, before the recession. He said the bond purchases were being reduced because they had achieved success in pulling the economy out of the crisis that was triggered in 2007 by the risky practices of under-regulated banks and investment firms.

Although it’s hard to say how the economy would have fared without the Fed’s big bond buys, it’s hard to credit the program for the slowly improving conditions. In fact, critics still say that the Fed policy was a bigger boon to Wall Street than Main Street. Instead of stimulating job creation and investment, much of the $85 billion a month in bond purchases went to strengthening the banks’ bottom line.

Recent job creation figures have not been bad, but they are not a proportionate reflection of the trillions of dollars put by the Fed into the hands of the banks, to be injected in principle into the economy.

Evidence in support of this analysis is that the mild inflation that should have occurred from the infusion of such funds did not happen. Americans will wait to see if the big balances the banks now hold will lead to generous year-end bonuses for their senior executives.

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