Federal Reserve (Fed) decided on Thursday to launch the third phase of the bond purchase program by printing money – the so-called program of “Quantitative easing” (QE3) – with 11 votes for and 1 against, according to MarketWatch. Fed will begin Friday to buy bonds, indefinitely, with combined monthly purchases of $40 billion to stimulate the U.S. economy, the U.S. central bank announced today.
In September, these acquisitions, which will focus on mortgage bonds, will reach $23 billion. The Federal Reserve is launching the third round of increasing the liquidity on the market through bond purchases because of substandard growth and unemployment rate above 8%.
The monetary policy committee of the Fed ended Thursday a two-day meeting, expressing concerns that without an intervention now, “growth will be insufficient to generate a sustainable improvement in labor market conditions.”
Besides bond purchases, the Fed intends to keep the monetary policy rate near zero until mid-2015, extending the initial term (end of 2014). Therefore, this term goes beyond the mandate of Fed President, Ben Bernanke, which will end in early 2014. Federal Reserve has been maintaining its key interest rate near zero since December 2008. The vote in the monetary policy committee for the measure was 11 to 1.
“The committee will closely monitor incoming information on economic and financial developments in the coming months,” the statement reads.
The Fed made this aggressive intervention because of ongoing concerns about the economic outlook, particularly the labor market.
The statement continued: “If the outlook for the labor market does not improve substantially, the committee will continue its purchases of mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in the context of price stability.”
Despite key interest near zero for the past three and a half years, and the Fed purchase of assets worth $2,300 billion, the unemployment rate has remained above 8% since the beginning of 2009. There are 12.5 million people unemployed in the U.S.
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