Fed Undercuts QE3 with $40 Billion Purchases Each Month

Ben S. Bernanke, chairman of the U.S. Federal Reserve, in Washington, D.C. Photographer: Joshua Roberts/Bloomberg

The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.

“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today in a statement at the end of a two-day meeting in Washington.

The FOMC said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

Stocks soared after the Fed’s statement. The Standard & Poor’s 500 Index jumped 1.6 percent to 1,459.92 at 2:24 p.m. in New York. The yield on the 10-year Treasury note rose to 1.78 percent from as low as 1.71 percent.

Read more on Bloomberg.


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