Stuttering US economy to get third massive injection

No limit on asset purchases under QE3 programme after poor figures on jobs

The Federal Reserve yesterday fired the starting gun on QE3 as it said it was ready to throw potentially unlimited firepower at the flagging US recovery.

Ben Bernanke, the Federal Reserve chairman, who trailed the move in his Jackson Hole speech two weeks ago when he expressed "grave concerns" over the stuttering US jobs market, will launch the latest burst of quantitative easing as soon as today. Rate-setters have already pumped in $2.3 trillion (£1.4 trillion) in the first two rounds of QE over the past three years.

The Federal Open Market Committee will buy up $40bn in mortgage-backed securities every month to help bank balance sheets left crippled by the nation's housing market collapse. The Fed is also extending its Operation Twist programme – which aims to bring down long-term interest rates – by $45bn a month until the end of the year.

Significantly, the Fed has set no time limit on its purchases, and is ready to do as much as it takes until the economy improves. It said: "If the outlook for the labour 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." The last $600bn programme of QE, launched in November 2010, ran for eight months.

Unlike the Bank of England, the Fed has a dual mandate to both control inflation and ensure full employment. But the latest disappointing figures for August showed US employers creating just 96,000 jobs – well below the level needed to cut the unemployment rate as well as boost the re-election chances of President Barack Obama.

The Fed's decision also comes in the wake of the OECD think-tank cutting its growth forecasts for the world's biggest economy, now expected to expand by 2.3 per cent this year instead of 2.4 per cent. At the end of this year the so-called "fiscal cliff" also looms – automatic tax hikes and spending cuts due to kick in because Democrats and Republicans failed to agree on austerity measures last year. Some analysts fear these measures could knock around $500bn off the US economy unless politicians can strike a compromise deal.

The ING Bank economist James Knightley said weak manufacturing and retail spending had also spooked the committee, as well as last week's jobs figures. He said: "The economy is losing momentum, not rebounding, hence today's action. Furthermore, worries over the 'fiscal cliff' are only going to intensify the downside growth risks, which will limit the opportunity for unemployment to come down."

The Fed's statement added: "The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions". Interest rates will also be held at their current record low of 0-0.25 per cent at least until the middle of 2015 as "a highly accommodative stance will remain appropriate for considerable time after the economic recovery strengthens", according to the committee.

Shares in New York rallied following the Fed's statement as the Dow Jones Industrial Average added more than 100 points. The news from across the Atlantic followed Germany's approval for the eurozone's €500bn (£400bn) bailout fund on Wednesday.

Jeremy Cook, chief economist at the foreign exchange company World First, said: "The key to the market reaction is that it has not been disappointed. Everything is roughly what was expected and much like the German supreme court did not scare the horses with its decision, the Fed has not done so either."

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there