The Federal Reserve Bank announced a new round of quantitative easing Thursday — this time with an indefinite timetable.
The Fed, along with the Federal Open Market Committee, “agreed… to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month,” they announced in a release.
This is the third round of easing by the Fed since the 2008 financial panic.
“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.”
In other words, the Fed will continue quantitative easing until there is a drop in unemployment but will try to avoid sparking inflation.
“The weak job market should concern every American,” Federal Reserve Chairman Ben Bernanke said.
“Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months,” the Fed announced, citing slow gains in employment, household spending expanding, and the housing sector showing slow improvements.
The Fed’s decision, therefore, seems based not on a forecast of worsening conditions, but rather on the desire to accelerate the economic recovery.
“QE3 will help the economy, but it will not fix all of our problems. It will help get the economy growing faster, but with a long time lag. So a year from now, look for better growth,” says Forbes contributor Bill Conerly.
Conerly does note however, that QE3 will not solve all the systemic problems littered throughout our economy, one of them being a mismatch between the skills available and the needs of the labor market.
“There are plenty of job openings in health care, and plenty of people looking for work who are high school dropouts. We have lots of openings for computer programmers and engineers, and plenty of college grads with degrees in art and journalism. QE3 cannot fix that mismatch,” he writes.
Emerging economies, however, are not so receptive to the idea of quantitative easing.
The China Daily newspaper reported last April the dismay of China’s central bank governor, Zhou Xiaochuan, over extra capital in the market.
Zhou Xiaochuan, “urged the United States to take greater responsibility for the global effects of its monetary-easing policies, given the dollar’s position as the world’s major reserve currency,” China Daily reported.
“Zhou said China understood that the US needed to stimulate its economy by taking certain measures, but the US Federal Reserve, the country’s central bank, has ‘responsibility for the global economy, not only for the US economy’.”
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