The Federal Reserve announced Thursday that it will attempt to stimulate economic growth by pursuing a third round of quantitative easing, a process where the Fed buys assets from banks and private companies to add money into the economy. The country's central bank will buy $40 billion in mortgage-backed securities each month, with no end date for the process given.
"The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," said the Federal Open Market Committee's statement. The committee said they intend to use the easing to "put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."
It was anticipated that the Fed would pursue a third round of easing to aid the struggling economy, but it is unconventional for the policy to remain so open ended. The QE3 will continue, in addition to other polices, "until such improvement is achieved in a context of price stability." The Fed also announced they would maintain low interest rates until the end 2015, which is an entire year longer than had been stated previously.
By purchasing the mortgage-backed securities, the Fed hopes to spur even lower mortgage rates and stimulate home buying. The persistently weak housing market has been a factor in the country's slow recovery from the recession, and previous rounds of easing have not done much to fix this problem. The government first started the easing in November of 2008 and followed with a second round in November of 2010.
One drawback to the policy is inflation, although the central bank said they don't expect it to rise above 2 percent. The policy can also fail if increasing banks' assets does not spur an increase in lending.
The announcement comes in the midst of a heated presidential election focused on the economy. President Barack Obama's administration says it will not comment on monetary policy. Many conservatives are openly critical of government economic intervention like quantitative easing, and challenger Mitt Romney vows to replace Bernanke if elected.
"I don't think there's any action that they are going to take that will have an immediate impact on the economy," Mr. Romney said last week.
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