The Federal Reserve announced Thursday it will begin purchasing $40 billion worth of agency mortgage-backed securities monthly. The action, along with increasing holdings of longer term securities should help keep interest rates down, bolster the mortgage market and improve the overall financial conditions in the U.S. economy, the Fed says. Interest rates will be kept “exceptionally low.”
Reports called the move “aggressive” and “[Ben] Bernanke’s bazooka,” as stock indexes rose on the news.
The purchase of agency MBS will begin Friday, the Fed announced. The actions are part of a larger effort to stimulate growth and reduce unemployment under quantitative easing, or “QE3.”
“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,” the Federal Open Market Committee said Thursday.
The action was met with some acceptance from Democrats, though Republican political figures including vice presidential candidate Paul Ryan have criticized the approach.
“It is welcome and entirely appropriate that the Federal Reserve acted today to take aggressive additional steps to support economic recovery,” said Congressman Barney Frank (D-Mass.). “Unemployment is still much too high and, as the Open Market Committee noted, the economy still faces strong headwinds.”
Written by Elizabeth Ecker