The Federal Reserve announced it would spend $40 billion a month on bond purchases in an effort to stimulate the economy and drive the the unemployment rate down.
The Wall Street Journal says that unlike the first two rounds of Quantitative Easing, this time the Fed will focus solely on buying mortgage-backed securities.
In its statement, the Federal Reserve said the economy was growing but at a sluggish pace.
“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 Federal Open Market Committee said. Remember the Fed has a dual mandate from Congress: keep inflation and the unemployment rate in check.
This action also represents an open-ended commitment on the part of the Federal Reserve, which said it was not concerned about inflation at this time.
“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 Fed said. That last line means that the Fed promises to tweak this program if inflation begins to be a problem.
Another big announcement, is that the Federal Reserve will keep its federal funds rate at near zero through mid-2015.