Federal Reserve to pump more liquidity into US economy

September 14th, 2012 - 1:31 pm ICT by IANS  

Washington, Sep 14 (IANS/EFE) The US Federal Reserve Thursday announced further steps to stimulate a struggling economy and pledged to keep short-term interest rates at near zero until 2015.

At the end of its two-day policy meeting, the Fed said in a statement that it plans to purchase $40 billion in mortgage-backed securities per month indefinitely until the nation’s employment outlook improves.

The institution headed by Ben Bernanke said this third, open-ended round of quantitative easing, combined with its Operation Twist initiative - which involves swapping short-term debt for holdings with longer maturities - means the Fed will be purchasing nearly $85 billion in long-term bonds monthly.

The Federal Reserve also pledged to keep the federal funds rate - the interest rate on overnight interbank loans - at between zero percent and 0.25 percent until at least mid-2015.

The Fed had said in January of this year that it would keep that key interest rate low until the end of 2014 in a bid to encourage borrowing and risk-taking and lower the unemployment rate, which has stood at more than 8 percent since early 2009, the height of the global financial crisis.

“To support continued progress toward maximum employment and price stability, the (Federal Open Market) Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens,” the Federal Reserve said.

In a press conference after the QE3 move was announced, Bernanke said high unemployment remains a “grave concern” and was the reason for the Fed’s latest action.

Asked when it may stop the bond purchases, he said “we will be looking for signs that the economy is strong enough to promote improvement, and sustained improvement, in labor market conditions and declines in unemployment.”

“The idea is to quicken the recovery to help the economy begin to grow quickly enough to generate new jobs and reduce the unemployment rate. So that is the criterion we are looking at,” the Fed chairman said.


Related Stories

Tags: , , , , , , , , , , , , , , , , , , ,

Posted in Business |