Friday, September 14, 2012

New round of quantitative easing may be biggest yet


The Federal Reserve's third round of bond-buying could ultimately rival the size of its first huge quantitative easing, which was widely seen as boosting growth.
The Fed initially disappointed some investors on Thursday when it said it would buy $40 billion of mortgage-backed securities each month. That is far less than the $75 billion a month it bought in its second round of bond-buying, or the more than $100 billion monthly tab for its first round.
But this time, the Fed has promised that "if the outlook for the labor market does not improve substantially," it won't stop buying and could ramp up its spending further.
Depending how the Fed defines "substantially" and how long it takes to get there, it could end up buying bonds for several years, adding $1.7 trillion or more to its balance sheet, analysts say.
By comparison, the Fed's initial round of quantitative easing, first announced in November 2008 as the U.S. economy slumped into a deep recession, totaled $1.75 trillion .
"They've clearly committed to do what it takes to get unemployment down where they want it," said Pierre Ellis, an economist at New York-based Decision Economics. "There's no limit."
To Ellis, the "big bazooka" of open-ended bond purchases -- designed to boost the economy by lowering borrowing costs -- won't have much immediate impact because the economy's main headwind is uncertainty over fiscal policy and the outcome of a presidential election.

Read more: http://www.reuters.com/article/2012/09/14/us-usa-fed-qe3-size-idUSBRE88D13120120914

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