By Simon Miller
The US Federal Reserve has embarked on another round of quantitative easing as unemployment stubbornly remains above 8%.
Announcing the action, Fed chairman Ben Bernanke said that it would target agency mortgage-backed securities at a pace of $40bn (£25bn) per month and would continue to extend the average maturity of its securities holdings and maintain its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.
As a result, the Fed’s holdings of longer-term securities will increase to around $85bn each month until the end of the year in a bid to put downward pressure on longer-term interest rates.
Bernanke added: “Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed.”
He continued: “The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labour market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.”
The Fed said that it would closely monitor economic and financial developments and if employment didn’t improve, it would 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