Fed takes aim at slow growth and high joblessness

The US Federal Reserve took aim at slow growth and high joblessness, announcing a new, open-ended $40 billion per month bond-buying program as it slashed its 2012 growth forecast.

The Fed said the new monetary easing effort would remain in place until it sees substantial improvement in the US jobs market, where 8.1 percent of Americans remain unemployed.

Doubling up on its message to banks, industry and consumers that holding their money unused would essentially cost them, the US central bank also pledged to keep its benchmark interest rate at ultra-low levels until at least mid-2015.

By then, it hopes, economic growth will have begun generating the jobs and spending levels necessary to be self-sustaining.

The news gave new life to US stocks, with the S&P 500 closing up 1.63 percent, and the Dow 1.55 percent.

The dollar fell, $1.30 line against the euro before falling back to $1.2987 in late trade.

Pointing to weak growth and stagnation in hiring, the Fed said it would begin on Friday spending $40 billion each month on mortgage-backed securities, its third "quantitative easing" program in less than three years.

"QE3" would take the US central bank's total monthly purchases, including ongoing programs, to $85 billion a month, the Fed said.

That "should increase the downward pressure on long-term interest rates more generally, but also on mortgage rates specifically, which should provide further support for the housing sector, encouraging home purchases and refinancing," said Fed Chairman Ben Bernanke.

The effect should spill through to the broader economy, pushing up the prices of homes, stocks, and other assets that, the Fed hopes, will make Americans feel more financially comfortable and begin spending.

If currently insecure and tight-fisted Americans are more willing to spend, Bernanke explained, "That's going to provide the demand most firms need to be able to hire or invest."

The Federal Open Market Committee, the Fed's policy board, also said its monetary stimulus efforts will remain in place "for a considerable time after the economic recovery strengthens," a promise it had not made before.

"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."

"We're just trying to get the economy moving in the right direction to make sure that we don't stagnate at high levels unemployment," Bernanke told reporters.

The unemployment situation remained a "grave concern," he said, adding: "The weak job market should concern every American."

The FOMC cut its forecast for growth this year to 1.7-2.0 percent from the previous 1.9-2.4 percent range, though it predicted a pickup to 2.5-3.0 percent in 2013.

The jobless rate would still be in the 6.7-7.3 percent at the end of 2014, while inflation, would remain at or below the Fed's 2.0 percent target through 2015.

After months of debating whether to embark on new stimulus, all but one of the 12-member FOMC fell in line with Bernanke's worries about persistent high joblessness.

"As we look at the last six months, we've seen unemployment basically the same place it was in January. We've seen not enough jobs growth to bring down the unemployment rate and what we need to see is more progress," Bernanke said.

"There is not a specific number we have in mind. But what we've seen last six months isn't it," he said.

Jim O'Sullivan of High Frequency Economics said that while the Fed's move will not have much immediate effect, it will act on the economy "like a time-release capsule, the effects of which increasingly kick in over time."

""More accomodative financial conditions can only add to growth over time, even with the impact of monetary policy diluted relative to earlier cycles," he said.

"The Fed news reinforces our view that 2013 growth is likely to be stronger than widely expected, with momentum building as the year progresses."

But other analysts were more doubtful, pointing to external risks to the economy from Europe and China and the political stalemate over fiscal policy, which Bernanke conceded he has no leverage over.

"Bernanke is marching US monetary policy even further into totally uncharted territory," said John Ryding and Conrad DeQuadros and RDQ Economics.

"Our view is that these actions will do little to stimulate growth but will raise inflation expectations," they said.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • Beijing poised for 'de facto control' of S.China Sea: Philippines
    Beijing poised for 'de facto control' of S.China Sea: Philippines

    Beijing is poised to take "de facto control" of the South China Sea, the Philippines warned on Sunday as it called on fellow Southeast Asian countries to "finally stand up" to their massive neighbour. Vietnam, the Philippines, Malaysia and Brunei claim parts of the strategic South China Sea, but Beijing claims nearly all of it and its increasingly strident assertions of its territorial ambitions have caused concern in the region and beyond. "(China) is poised to consolidate de facto control …

  • Philippines urges ASEAN to stop China in South China Sea

    KUALA LUMPUR, Malaysia (AP) — The Philippines on Sunday urged the 10-member Association of Southeast Asian Nations to take immediate steps to halt land reclamation by China in the disputed waters of the South China Sea, warning that failure to do so will see Beijing take "de facto control" of the area. …

  • Indonesia defiant as UN leads condemnation of looming executions
    Indonesia defiant as UN leads condemnation of looming executions

    Indonesia on Sunday signalled it was determined to push ahead with the execution of eight foreign drug convicts, despite a growing wave of global condemnation led by United Nations chief Ban Ki-moon. Authorities on Saturday gave formal notice to the eight -- from Australia, Brazil, Nigeria and the Philippines -- that they would be executed by firing squad imminently, along with an Indonesian prisoner. The group have been moved to the high-security prison island of Nusakambangan, where …

  • U.N. chief appeals to Indonesia not to carry out executions
    U.N. chief appeals to Indonesia not to carry out executions

    United Nations Secretary-General Ban Ki-moon appealed to Indonesia on Saturday not to execute 10 prisoners, including two Australians, for drug-related crimes. Indonesia has so far informed seven of the 10 death row inmates, including the Australians and one Nigerian, that they will be executed in a matter of days, possibly as soon as Tuesday. Nationals from Brazil, Ghana and the Philippines are also on Indonesia's death row. A temporary reprieve was granted to a French citizen who will not …

  • AFP monitoring deployment of Chinese seaplanes in Spratlys
    AFP monitoring deployment of Chinese seaplanes in Spratlys

    The Armed Forces of the Philippines (AFP) is adopting a wait and see approach amid reports that China will soon deploy seaplanes to further strengthen its maritime claims in the disputed Spratlys. Brig. Gen. Joselito Kakilala, spokesman for the military and commander of the AFP Civil Relations Service, said they have yet to ascertain the real purpose behind China’s continuing aggressive moves in the region. “We will wait and see before coming up with an official stand,” Kakilala said when …

  • US eyes access to Phl bases in 8 locations
    US eyes access to Phl bases in 8 locations

    The United States has asked for access to Philippine military bases in eight locations to rotate troops, aircraft and ships as Washington shifts its forces to Asia and as China expands its military presence in the South China Sea. US Defense Secretary Ash Carter, in a speech in Arizona, has outlined Washington’s next phase in its Asia “pivot,” deploying its most sophisticated destroyers, bombers and fighters to the region. The Asia “pivot” has already seen US Marines rotating through the …

  • Washington bucks China’s aggressive actions
    Washington bucks China’s aggressive actions

    Short of condemning China’s aggressive actions in the West Philippine Sea, a senior US military official said Washington does not support any act of coercion and bullying. “We don’t stand for coercion, bullying and aggressiveness,” said Brig. Gen. Christopher Mahoney, assistant US military director for  Phl-US Joint Balikatan Exercises 2015. At the sidelines of this year’s joint military exercises’ static aircraft display held at Clark Air Base in Pampanga, Mahoney told a media briefing that …

  • ‘Giving Bangsamoro police control is constitutional’
    ‘Giving Bangsamoro police control is constitutional’

    The proposed grant to the chief minister of the envisioned Bangsamoro region of operational control over police forces in the area is consistent with the Constitution, a senior administration lawmaker said yesterday. It is clear in the proposed BBL that the Bangsamoro police will be part of the Philippine National Police (PNP), while the Bangsamoro Regional Police Board (BRPB) will be part of the National Police Commission (Napolcom) and will carry out Napolcom’s mandate in the region,” he …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options