Fed announces new round of bond buying in bid to shore up sluggish economy.
- The Federal Reserve announced a new round of bond-buying on Thursday, known as QE3, in an attempt to boost the lackluster recovery by pushing down longer-term interest rates. The move came after Fed Chairman Ben Bernanke expressed "grave concern" in a late August speech in Jackson Hole, Wyo. about the health of the job market. His concerns were likely reinforced by a bleak employment report for August that showed that payrolls grew a tepid 96,000 and that many potential job seekers became so discouraged, they dropped out of the labor force.
- The Fed will purchase additional mortgage-backed securities at a pace of $40 billion per month. The move marks an open-ended commitment and is one of the more aggressive moves the Fed could have chosen.
- Analysts largely expected a QE3 announcement to come after the Fed’s policy-setting meeting this week, with 34 of 47 respondents to respondents to The Wall Street Journal’s latest forecasting survey anticipating the Fed would make the move.
- With the Nov. 6 election approaching, the Fed has been under a political magnifying glass. Democrats pressed the Fed this summer to do more to help the economy. Republicans, many of whom have been highly critical of the Fed and its past bond buying efforts, had urged the central bank not to launch QE3, arguing that it could destabilize the economy and cause inflation.
- The Fed also said it expects to keep its benchmark short-term interest rate near zero though mid-2015, a change from a previous pledge to keep rates low through 2014.
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