Fed Announces New Policy

Fed Announces New Policy

Federal Reserve Opts for Third Round of Quantitative Easing

Today, the Federal Reserve announced a new policy aimed at stimulating the still struggling US economy. The program marks the fourth program by the Federal Reserve and is the third program to concentrate on quantitative easing; the purchasing of mortgage-backed securities. QE3, short for quantitative easing, is to begin September 14th and will encompass the Fed buying $40 billion in mortgage-backed securities each month of the program. Previous programs aimed to spur the economy were QE1, QE2, and Operation Twist. Operation Twist will continue as part of the QE3 policy.

Another key aspect of the policy is to maintain the low interest rates at or near current level through mid-2015. This is longer than the previously forecasted 2014 timeframe. In an official statement by the Fed, the aims and goals of the policy are intended to, “force downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative”.

The policy was met with mixed responses by Congressional members. Senator Bob Corker (R-TN), a vocal critic of continued action by the Fed, expressed disappointment in the Fed’s decision and made assertions that the move was politically motivated. Some Republicans used the announcement as an opportunity to criticize the administration’s handling of the economy.

Representative Barney Frank (D-MA), Ranking Member of the House Financial Services Committee responded to the Fed’s announcement by stating, “It is welcome and entirely appropriate that the Federal Reserve acted today to take aggressive additional steps to support economic recovery.  Unemployment is still much too high and, as the Open Market Committee noted, the economy still faces strong headwinds”. He and other Democrats dismissed the notion that the policy announcement was politically motivated.

For additional information, please reference the Fed’s Press Release by clicking here or contact PACB by e-mail or  717-231-7447 with any questions.