Quantitative easing may turn out to be a gift that keeps on giving for the U.S. economy.

As the Federal Reserve prepares to end its third round of bond buying next week, the central bank plans to hang on to the record$4.48 trillion balance sheet it has accumulated since announcing the first round of purchases in November 2008.

That will continue to keep a lid on borrowing costs, helping the Fed lift inflation closer to its target and providing support to a five-year expansion facing headwinds abroad, from war in the Mideast to slowing growth in Europe and China.

Holding bonds on the Fed’s balance sheet limits the supply of securities trading on the public markets, which helps keep prices up and yields lower than they otherwise would be. That provides stimulus to the economy just as a cut in the Fed’s benchmark interest rate would, according to Michael Gapen, a senior U.S. economist for Barclays Plc in New York and former Fed Board section chief in charge of monetary and financial markets analysis.

“Preserving it will continue to support the economy,” Gapen said. “The Fed message is we think we’ve done enough to generate momentum and keep the economy on the right track. Now we’re going to wait and see how things go.”

David Fuller's view

The Fed is definitely going to err on the side of caution, probably for the lengthy medium term, subject to key indicators that it is monitoring.

Here is the Federal Reserve’s Dual Mandate, as it was last revised in 1977:

"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates."

Therefore, after GDP growth which, I assume the Fed will want to see persistently above 3%, employment will be the next most important factor.  In this regard, the Fed will not just be looking at the declining unemployment rate.  It will also be monitoring the quality of jobs in terms of salaries and fulltime versus part-time employment.  Additionally, it will want to see the overall labour force increase, so you may be interested in this article: The U.S. labor force is still shrinking. Here’s why.

The Fed will also remain cautious while US inflation and government bond yields remain low.  Additionally, the Fed will know that many of the EU economies are moribund, and global GDP growth is also slow.  Against this background caution by the Janet Yellen and here colleagues is understandable.  For the US stock market, this means that monetary policy will remain a considerable tailwind, despite the ending of QE.