In December 2012, the Fed moved away from a time horizon for exceptionally low rates, instead tying the duration of exceptionally low rates to an economic threshold, namely as long as the unemployment rate remains above 6.5% and inflation and inflation expectations remain low. By purchasing Treasury securities, agency debt securities, and agency mortgage-backed securities (MBS), the Fed has increased the size of its balance sheet from less than $0.9 trillion in 2007 to about $4 trillion at the end of 2013. This announcement was popularly referred to as QEII. On December 18, 2013, the Fed announced that it would begin "tapering off" (reducing) its asset purchases, and beginning in January 2014, it would only purchase $35 billion MBS and $40 billion Treasury securities per month. Inflation has remained relatively low. Since the Fed did not pursue such policies in previous recessions, in part because it did not reach the zero lower bound on short-term interest rates, it is unknown at what point the Fed would choose to terminate its unconventional policies in this economic recovery and how willing it would be to use such policies in future recessions, which might be more typical than the recent one. Effect on Interest Rates and Economic Growth

The Fed has stressed that large-scale asset purchases (quantitative easing) stimulate the economy by reducing long-term interest rates. QE has also changed certain financial markets. In March 2009, the Fed announced that exceptionally low rates would be in place for an "extended period of time." More recently, the Fed has stated that 
it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal. Once the Fed returns to conventional monetary policy and the federal funds rate is no longer at its lower bound, it is unclear whether the Fed will continue to announce a target date or economic phenomenon (such as a target unemployment rate) for when it expects to next change the federal funds rate. Credibility could also be undermined when the Fed repeatedly "moves the goal posts" on when exceptionally low rates will end. As a result of QE, there have been extraordinary increases in the monetary base that have not led to any demonstrable increase in inflation thus far. Legislative Options to Prevent Quantitative Easing

Congress has given the Fed broad discretion to implement monetary policies as it sees fit to meet its statutory mandate "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." For example, in its announcement of QEII, the Fed stated
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities…. The members of the Federal Open Market Committee project that the unemployment rate will be at or near full employment in 2015, but most do not believe it would be appropriate to raise the federal funds rate above zero before then. Although it is difficult to disentangle the effects of the Fed's policies from other factors affecting interest rates, the fact that Treasury and MBS yields are at their lowest levels in decades suggests that the Fed's unconventional policies have had the direct effects that were intended. It is clear at this point that monetary policy alone is not potent enough to return the economy to full employment quickly, and there may be diminishing economic benefits from additional QE. While the economic benefits of unconventional monetary policy have not been sufficient to restore full employment, the main perceived risks (higher inflation, higher inflationary expectations, or asset price bubbles) have not yet materialized several years after QE began. If unconventional policy were failing because it is undermining the Fed's credibility, the evidence would be high interest rates, high inflation expectations, or both; to date, neither has occurred.
The "Great Recession" and the ensuing weak recovery have led the Federal Reserve (Fed) to expand its monetary policy tools. Since December 2008, overnight interest rates have been near zero; at this "zero bound," they cannot be lowered further to stimulate the economy. As a result, the Fed has taken unprecedented policy steps to try to fulfill its statutory mandate of maximum employment and price stability. Congress has oversight responsibilities for ensuring that the Fed's actions are consistent with its mandate.
The Fed has made large-scale asset purchases, popularly referred to as "quantitative easing" (QE), that have increased the size of its balance sheet from $0.9 trillion in 2007 to about $4 trillion at the end of 2013. In September 2012, the Fed began a third round of monthly purchases of Treasury securities and mortgage-backed securities (MBS), referred to as "quantitative easing three" or QEIII. Unlike the previous rounds, the Fed has not announced when QEIII will end or its ultimate size. In December 2013, the Fed began "tapering off" its asset purchases, and announced in January 2014 that it would purchase $30 billion of MBS and $35 billion of Treasury securities per month. The Fed views QE as stimulating the economy primarily through lower long-term interest rates, which stimulate spending on business investment, residential investment, and consumer durables. Since QE began, Treasury yields and mortgage rates have reached their lowest levels in decades; it is less clear how much QE has affected private-borrowing rates and interest-sensitive spending. Critics fear QE's potentially inflationary effects, via growth in the monetary base. Inflation has remained low to date, but QE is unprecedented in the United States and the Fed's mooted "exit strategy" for unwinding QE is untested, so the Fed's ability to successfully maintain stable prices while unwinding QE is uncertain, as are potential unintended consequences.
The Fed has also changed its communication policies since rates reached the zero bound. From 2011 to 2012, it announced a specific date for how long it anticipated that the federal funds rate would be at "exceptionally low levels," and over time incrementally extended that horizon by two years. In December 2012, it replaced the time horizon with an unemployment threshold. It now anticipates that the federal funds rate would be exceptionally low "well past the time that the unemployment rate declines below 6.5%," provided inflation remains low. The Fed argues that its new communication policies make its federal funds target more stimulative today. In this view, if financial actors are confident that short-term rates will be low for an extended period of time, then long-term rates will be driven down today, thereby stimulating interest-sensitive spending. Uncertainty about economic projections hampers the Fed's ability to stick to a preannounced policy path, and repeatedly "moving the goal posts" on when it will raise rates could undermine its credibility. If unconventional policy were failing because it has undermined the Fed's credibility, the evidence would be high interest rates, high inflation expectations, or both; to date, neither has occurred.
The sluggish rate of economic recovery suggests that unconventional monetary policy alone is not powerful enough to return the economy to full employment quickly after a severe downturn and financial crisis. It also raises questions about the optimal approach to monetary policy. The economic recovery is now well established, but inflation was below the Fed's goal of 2% in 2013. The Fed officials who set interest rates project that the unemployment rate will be at or near full employment in 2015, but most do not believe it would be appropriate to raise the federal funds rate above zero before then. Although many perceived risks of unconventional policy have not been realized to date, risks may intensify as the economy nears full employment.