Fed announces QE3 with mortgage backed securities purchases every month

Nathan Andrada – Fourth Estate Cooperative Contributor

Washington, DC, United States (4E) – The U.S. Federal Reserve announced it is undertaking open-ended purchases of $ 40bn worth of mortgage backed securities (MBS) every month expanding it long-term securities holdings. The move is the third round of quantitative easing the Fed has made since 2010 as it tries to propel economic growth and reduce unemployment.

The Federal Open Market Committee (FOMC) said the additional MBS purchases per month are separate from the debt it is currently buying under Operation Twist.

Since the plan is open-ended, it means that the Fed will continue to do so until it sees improvement in economic conditions particularly unemployment.

In a statement, the FOMC said it will maintain its purchases of agency MBS, continue its assets buying program and utilize other tools until its sees improvement in the labor market with consideration of price stability.

The Fed Chairman said that he sees “exceptionally low” interest rates environment to persist until the middle of 2012, and has held rates steady at 0.25 per cent.

Major stock market averages in the U.S. surged at the news of the Fed’s latest initiative to buy longer-term assets and to continue its simultaneous selling of some short-term securities. The Dow rose by over 100 points — the highest level since December 2007.

The Fed also improved its outlook for the job market as it expects unemployment to decline to 6.7 per cent to 7.3 per cent in 2014, higher than its June forecast of 7 per cent to 7.7 per cent. In 2015, the central bank projects unemployment to further ease to 6 per cent to 6.8 per cent.

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