Fed enacts bond-buying program

WASHINGTON - Agence France-Presse

Traders work as a television screen shows U.S. Federal Reserve Chairman Ben Bernanke, on the floor of the New York Stock Exchange, Sept. 13, 2012. REUTERS photo

The U.S. Federal Reserve on Sept.13 set a new $40 billion a month bond-buying program aimed at cutting long-term interest rates to boost the weak economy.

And it signaled, without setting a specific target, that monetary easing efforts would remain in place until it sees substantial improvement in the jobs market, where 8.1 percent of Americans remain unemployed.

Pointing to continued weak growth and stagnation in the jobs market, the Fed said it would spend $40 billion on agency mortgage-backed securities each month in an open-ended operation targeted at boosting the moribund housing sector.

That would take the U.S. central bank’s total monthly purchases, including ongoing programs, to $85 billion a month, the Fed said.

These actions “should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative,” it said.

The Federal Open Market Committee, the Fed’s policy board, also pledged to keep its benchmark rate at the current near-zero level through mid-2015, at least six months longer than its earlier commitment.

“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens,” it said.

“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 until such improvement is achieved in a context of price stability.” The FOMC said that the economy continues to expand at a “moderate” pace, but noted a slowdown in investment by businesses.

 The FOMC said it was “concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.” It also noted some vulnerability of the U.S. economy to ongoing strains in global financial markets, a reference mainly to the ongoing eurozone crisis.

It said it expected inflation to remain under control, staying at or below the Fed’s 2.0 percent target.

FOMC members in line

After months of debating whether to embark on new stimulus, most of the 12 member FOMC seemed to fall in line with chairman Ben Bernanke’s worries that little ground was being made on the high jobless rate.

Bernanke two weeks ago called stagnation in the labor market “a grave concern,” warning that “persistently high levels of unemployment will wreak structural damage on our economy that could last for many years

After trading flat before the announcement, at 17:15 GMT, the Dow Jones Industrial Average was up 93.13 points (0.70 percent) at 13,426.48.

The S&P 500-stock index added 11.45 (0.80 percent) to 1,448.01, while the tech-rich Nasdaq gained 28.27 (0.93 percent) to 3,143.18. European stock markets rallied at the start of trading on Friday after the Federal Reserve unveiled fresh plans to stimulate the US economy. London’s benchmark FTSE 100 index jumped 1.11 percent to 5,884.38 points, Frankfurt’s DAX 30 won 1.19 percent to 7,397.98 points, and in Paris the CAC 40 surged 1.97 percent to stand at 3,571.07. The dollar slid further against the euro in Asian trade on Sept 14 after the Fed’s announcement. The euro strengthened to $1.3029 against $1.2986 in New York Trade late Sept. 13.