In fact, the Fed was almost forced into this role by elected officials who were not being responsible with fiscal policy.
Since Treasurys are the basis for all long-term interest rates , it makes mortgage rates and housing more affordable. The market expected the announcement of the end of quantitative easing Wednesday, putting an end to a more than two-year-old asset purchase program.
It also allowed lawmakers to continue spending money without worrying about incurring too much debt and raising interest rates. Fourth, the Fed announced it would keep its target Fed funds rate at zero until 2015.
Unexpectedly, the Fed still thinks it will be a "considerable time" before it begins to raise interest rates. Volcker tamed inflation by reversing the stop-go monetary policy of his predecessors.
While many believe monetary accommodation was necessary in 2008 and 2009, the Federal Reserve allowed its extraordinary measures of the financial crisis to become its ordinary policy. The reason businesses aren't hiring has very little to do with interest rates. This expansion in the money supply had the added benefit of keeping the value of the dollar low.
This took the toxic assets, comprised primarily of subprime mortgages, off the banks' hands. By Kimberly Amadeo. And when looking ahead, Rep. The Fed suspended QE1 for a few months until it realized in August that banks were hoarding the cash instead of lending it out.
One party favored tax cuts, while the other wanted to increase spending. Most investors consider the U.
This increase in the money supply stimulates demand by giving businesses more money to expand, and shoppers more credit to buy things with. QE3 is nothing new.
Overall, QE3 would represent the largest purchase of MBSs since the initial round that took place from 2009 through early 2010. QE3 Is on the Way Sep 13, 2012. QE4 set new precedents. Low interest rates mean less income for them. Bernanke announced the central bank would continue quantitative easing until either unemployment fell below 6.
These specific targets encourage economic growth by removing uncertainty. Markets clearly liked the FOMC's announcement, as the Dow Jones went up by over 200 points in the two hours after the news came out. The much more important question is whether QE3 will be able to boost the economy. If the Fed saw inflation becoming a big problem, it could easily reverse course and initiate contractionary monetary policy.
Brena graduated from Evangel University in Springfield, Missouri. Fed not likely to increase interest rates "until December or later". It had done all it could to support the economy through expansive monetary policy.