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Fed announces ideas for more economic stimulation

Posted 08-05-2013 at 03:04 by emmascott

After the release of August's depressing jobs report, the Federal Reserve said that it would think about further efforts to jump-start the country's economic recovery. Thursday, its plans for that economic stimulus effort were made public. Article source: Economic Stimulus

Fed open-ended economic stimulation

Following a two-day meeting of its policy committee, the Federal Reserve publicized that it will start a 3rd round of “quantitative easing” by spending $40 billion every month on mortgage-backed securities to be able to drive down the borrowing expenses of customers. That effort will continue as long as the Fed deems it necessary.

Short term interest rates will stay at historic lows for six months longer than they used to until the end of 2015. The Federal bank has publicized this change in policy.

The Federal Reserve has announced that it expects a decrease from the current 8.1 percent joblessness rate to 6.7 percent by 2014. It did lower its growth outlook for 2012 from 2.4 percent to 2 percent, but it expects 2013 and 2014 to have higher numbers.

Stock market rallies following announcement

There were four times as many stocks increasing than there were following after the announcement. The Dow Jones industrial average climbed 200 points to the highest levels since December 2007.

The stimulus was, in part, meant to increase stock, according to Fed chairman Bernanke.

Politics looming in the air

There are critics who say this was only done in order to get the Obama administration more supporters. In fact, people believe that the move was only made a few weeks before election to be able to help increase Obama’s likelihood of winning the election. According to Bernanke:

“We make our decisions based entirely on the state of the economy.”

But will it be sufficient?

One analyst, Paul Ashworth, criticized the endeavors and said they would not work:

“We doubt it will be enough to get the economy on the right track. It’s only a matter of time before speculation begins as to when the Fed will raise its purchases from $40 billion a month.”
Some economists believe that it will take about three years for the joblessness rate to decrease below seven percent. If the Fed spends $40 billion a month on mortgage bonds for three years, it will amount to $1.4 trillion, which are still less than the $1.7 trillion spent in the Fed’s first round of bond purchasing. That lasted from Nov 2008 to March 2010.

An additional $600 billion was put towards bonds from Nov 2010 through June 2011.

There are a lot of critics who believe that inflation may increase with the bond buying.


USA Today

Daily Finance

Daily Finance
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Nov 11, 2013 at 11:42