US Fed launches QE3, to buy $40 bn bonds monthly to boost economy

Last Updated: Friday, September 14, 2012 - 00:18

Zeebiz Bureau

Washington: To boost up the country’s waning economy, US Federal Reserve on Thursday announced an aggressive programme stating that it would spend USD 40 billion a month to buy mortgage-backed securities until high employment was reduced.

Post the global economic crisis that hit the world in 2008, the United States, a leader in the world of economy, has been facing one of the toughest times with its economy shrinking while its unemployment rate shooting up.

As per reports, the Q2 GDP growth of the country has been revised to 1.7 percent from the initial reports of 1.5 percent. However, despite the upward revision the GDP growth remained below the 2 percent level that was posted in the first quarter.

Announcing the bold steps, the Federal Reserve said the steps was to stimulate the still-weak US economy and reduce high unemployment adding that it will spend USD 40 billion a month to buy mortgage-backed securities for long as necessary.

The central bank also extended a plan to keep short-term interest rates at record lows through mid-2015. And it said it's ready to take other steps to boost the economy even after it strengthens.

The actions pointed to how sluggish the economy remains more than three years after the Great Recession ended. With less than eight weeks left until the presidential election, the economy remains the top issue on most voters' minds.

The Fed announced the steps after its two-day policy meeting ended.

The bond purchases are intended to lower long-term interest rates to spur borrowing and spending.

The Fed has previously bought USD 2 trillion in Treasury bonds and mortgage-backed securities since the 2008 financial crisis.

Skeptics warn that further bond buying might provide little benefit. Rates are already near record lows. Critics also warn that more bond purchases raise the risk of higher inflation later.

Many Republicans have been critical of the Fed's continued efforts to drive interest rates lower, saying they fear it could ignite inflation.

The Fed is under pressure to act because the US economy is still growing too slowly to reduce high unemployment. The unemployment rate has topped 8 percent every month since the Great Recession officially ended more than three years ago.

In August, job growth slowed sharply. Employers added just 96,000 jobs, down from 141,000 in July and well below what is needed to bring relief to the more than 12 million who are unemployed.

The unemployment rate fell to 8.1 percent from 8.3 percent, but that was because many Americans stopped looking for work, so they were no longer counted as unemployed.

With Agency Inputs

First Published: Friday, September 14, 2012 - 00:18

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