Fed to pump in $600b to fuel recovery engine
Nov. 4: The US Federal Reserve agreed to pour an additional $600 billion into the US economy, a bold but risky step aimed at keeping a fragile recovery moving and easing high unemployment. The Fed’s top policy panel cast aside its long-held reluctance to micro-manage the economy, as members faced down the prospect of a lost decade of growth.
The Federal Open Market Committee (FOMC) said Wednesday it would buy up new Treasury debt at a rate of around $75 billion a month, a scale not seen since the depths of the 2008-2009 economic crisis. While the Fed took similar measures during the crisis and has rolled over those expiring purchases, the expanded spending is unprecedented when the economy is not teetering on the edge of collapse, and redefines the bank’s role.
The move followed Tuesday’s mid-term elections in which control of the House of Representatives shifted to Republicans, who have called for less government interference in the US economy.
Fed chairman Mr Ben Bernanke, in an opinion piece appearing in Thursday’s Washington Post, said the central bank took the extraordinary steps because it has “a particular obligation to help promote increased employment and sustain price stability.”
He said this effort, described by some as “quantitative easing,” is less familiar to the public but was effective in helping the economy weather the economic crisis. “This approach eased financial conditions in the past and, so far, looks to be effective again,” he wrote.
“Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance,” he said. “Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. That, he said, “will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
The measure will push total Fed spending up to nearly a trillion dollars by next July. The Fed had already poured in more than $1.5 trillion to spark a recovery.
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