Fed to spend $40B a month on bond purchases

(AP) WASHINGON - The Federal Reserve says it will spend $40 billion a month to purchase mortgage-backed securities because the economy is too weak to reduce high unemployment. The Fed says it will keep buying more bonds until the job market shows substantial improvement.

The Fed also extended a plan to keep short-term interest rates at record-low levels through mid-2015. Both steps were announced after the Fed's two-day policy meeting Thursday.

Stocks rose after the Fed announcement. The Dow Jones industrial average was up 15 points for the day just before 12:30 p.m. It surged by 105 points within minutes of the announcement, then gave up some gains to be just 35 points higher.

How does "quantitative easing" work?
Full text of the Federal Reserve's statement
Fed prepared to do more to lift the economy

The dollar dropped against major currencies, and the price of gold shot up about $16 an ounce, roughly 1 percent, to $1,750.

"If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed said in a statement released after the meeting.

The statement was approved on an 11-1 vote. The lone dissenter was Richmond Fed President Jeffrey Lacker, who worries about igniting inflation.

The bond purchases are intended to lower long-term interest rates to spur borrowing and spending. The Fed has previously bought $2 trillion in Treasury bonds and mortgage-backed securities since the 2008 financial crisis.

Skeptics caution 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.

With less than eight weeks left until Election Day, the economy remains the top issue on most voters' minds. 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 U.S. 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 did fall 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.

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[fritzyk]

The same Mortgage Backed Securities that brought the economy to the edge of extinction? The same Mortgage Backed Secutities we already bailed the banks out for to the tune of $700B? Why is media's hair NOT on fire? Why is no-ones hair on fire? $480B per year is almost the Pentagon budget. Is murka's attention span so irrepairably broken that we cannot even remember being mugged for $700B 4 years ago? I'm starting to feel like we deserve whatever bad happens to us.

[parisdakar]

Nothing more than a shell game. Except no can win, only lose.

[SandmanUSMC]

Amazing how the Fed (Chairman Bernanke = Republican)kicks into high gear for a stimulus plan just before the election. Anything to help Romney get his fanny into the White House.

The timing of Fed actions are long overdue and clearly absent of sound judgement that should have been applied years ago.

I'm really supportive an a Fed audit. America needs to know the "secret" decisions that are made to bail out banks to the tune of trillions of our taxpayer dollars.

No doubt it has lost credibility with many people. I lay blame on corruption in the GOP. They raided the US Treasury time and again...absolutely pathetic.

[novotesobozo]

And where is this 40 billion a month coming from

[jtdev1]

Our pockets in the form of devalued currency

[forumcomments]

This seems to be the response when the Dow starts to show any signs of possible weakening. This will lower the dollar value and push inflation even higher.

[Bravadu]

Really, congress should be (and is better equipped to) tackling unemployment, but with gridlock in congress and unemployment actually benefiting one party, I think congress is just going to continue doing what they do best - nothing.

Anyway, QE3 is better than nothing, and I doubt if it'll result in significant inflation. QE1 and QE2 did not result in (significant) inflation.

The ongoing drought will affect food prices far more - higher corn/meat/gas prices

[chicosuave2u]

Actually this is just printing money so if you have a job or any money in your pocket, it is worth less. We are taking another decrease in pay thanks to the Gov't. I don't care what party it is, stop giving our money to countries that want to do us harm. Stop giving our money to other countries for them to drill for oil instead of us. Most of all, stop printing money. Only a fool thinks you spend and borrow more when you're broke.

[hypnotoad72]

chicosuave2u - and as we've pointed out time and again, we've the best government that money can buy.

Root cause is not government but government chooses to let itself be bought...

[Bravadu]

Really, congress should be (and is better equipped to) tackling unemployment, but with gridlock in congress and unemployment actually benefiting one party, I think congress is just going to continue doing what they do best - nothing.

Anyway, QE3 is better than nothing, and I doubt if it'll result in significant inflation. QE1 and QE2 did not result in (significant) inflation.

The ongoing drought will affect food prices far more - higher corn/meat/gas prices

[jtdev1]

Gee, how's that going to help me???

NOT AT ALL!

Here Wall Street is getting EVERYTHING and we're getting the shaft.

Dow is already over 13.3K and that's not enough???


This only helps the BANKS and WALL STREET. Not MAIN STREET.


What a joke.

[hypnotoad72]

+1

They made the mess and seem to be getting bailed out.

[hypnotoad72]

+1

They made the mess and seem to be getting bailed out.

My response is admittedly simplistic, but to repost 80 articles about corporate welfare, companies getting subsidy - even more subsidy for those who offshore jobs (which leads to revenue problems here at home), no jobs or reward for work done (which allows one to get more education, tools to do the work ,etc, etc)... At this juncture, I do increasingly believe the wrong side is being bailed out. Especially as they say they have no moral imperative to hire Americans in return for their free rides, as they lie to congress, and everything else. Anyone wanting links can go back to any number of times in the past when I posted scores of them.

[hypnotoad72]

Bandaids won't fix aortic hemorrhages... as long as middle class wage-paying jobs go down, nothing will turn around. More supply-side handouts just aren't going to work. Especially if their actions (offshoring, wage reductions, etc) continue.

Not sure on what Romney has to offer, but Obama has definitely alluded to the obvious solution:

http://www.barackobama.com/truth-team/entry/mitt-romneys-guide-to-creating-800000-jobs-overseas1