US Federal Reserve to launch new QE programme to boost economy
The Federal Reserve has launched a third bond buying programme to boost employment in the economy, Ben Bernanke has said.
The US Federal Reserve Chairman Ben Bernanke launched the third major asset purchase programme since 2008 – this time to stimulate the labour market Unlike the first two times, the Federal Reserve, this time, did not specify a specific amount it would spend nor did it articulate how long the programme would last.
The Federal Reserve would buy $40 billion worth of mortgage backed securities per month, Bernanke said.
According to the Federal Reserve Chair, the programme will continue until such time there is “sustained improvement” in the US employment numbers. The Federal Reserve purchasing Treasury bonds make the investment less attractive and is supposed to act as a stimulant for investors to buy more riskier assets in the stock market.
As expected, following the Bernanke announcement, the yields on 10 year US Treasury bonds fell from 1.76% on Wednesday to 1.73% on Thursday. At the same time, the stock markets in US, Asia as well as Europe rose significantly and it drove currencies higher as well.
The Federal Reserve Chairman also pledged to hold the historic low interest rates in the US at 0.25% until 2015 and said that the central bank would pursue a “highly accommodative” monetary policy until the economy is significantly stronger.
“This is a Main Street policy, because what we’re about here is trying to get jobs going,” Bernanke told reporters in Washington yesterday. “We’re trying to create more employment. We’re trying to meet our maximum employment mandate, so that’s the objective.”
The Fed Chairman also said that the policy committee is not overly concerned about inflationary pressures on the economy and claimed that the US central bank has credibility in the market about its ability to keep prices down.
The Federal Reserve also unveiled its growth estimates for the US economy which it says will grow by 2% this year down from 2.4% predicted earlier. But it expects growth to rebound in 2013 to as much as 3%.
"The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labour market conditions," the US Central Bank said