The Federal Reserve fulfilled expectations of more stimulus for the faltering economy, taking aim now at driving down mortgage rates until an improvement in unemployment that the central bank says will be a problem for several years.
The Fed said it will buy $40 billion of mortgage-backed securities per month in an attempt to foster a nascent recovery in the real estate market.
The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve.
“There’s strong hints that they’ll do Treasurys next,” Joe LaVorgna, chief economist at Deutsche Bank Advisors, said in a phone interview from London. “They’re pulling out all the stops to try to get this economy to gain some traction and, most important, to get unemployment down.”
The stock market, which had been slightly positive prior to the decision, shortly after 12:30 p.m., surged while bond yields, particularly farther out on the curve, jumped higher. Gold and other metals gained at least 1 percent across the board while the dollar slid against most global currencies.
Enacting the third leg of quantitative easing, or QE3, will take the Fed’s money creation past the $3 trillion level since it began the process in 2008.
“The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the Open Market Committee said in a statement.
Read more at CNBC.