US Fed turns taps back on with $600bn package of QE

Central bank to pump $75bn a month into the markets to stimulate economy

The Federal Reserve cranked its printing presses back into action, promising it would spend $600bn (£373bn) of newly minted money buying US government debt in an attempt to bring down interest rates and speed up the economic recovery.

The US central bank's Federal Open Market Committee said yesterday that "progress towards its objectives has been disappointingly slow", because unemployment remains high and inflation uncomfortably low in the world's largest economy.

In its long-awaited announcement on the resumption of quantitative easing last night, the Fed said that it will pump the new money into credit markets over the next eight months, at a rate of $75bn per month.

The recovery is simply not coming through fast enough, it said. "Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year. Employers remain reluctant to add to payrolls."

Quantitative easing (QE) is the central bank practice of printing new money and using it to buy bonds on the open market. It is designed to push market interest rates lower when traditional tools, such as official interest rates, have been exhausted. The Fed yesterday kept official rates in the rock-bottom range of zero to 0.25 per cent, where they have been since December 2008. It repeated that they would stay "exceptionally low ... for an extended period".

With Republicans having captured the House of Representatives in the midterm elections, on the back of public concern about government debt and spending, there is likely to be little scope for additional economic stimulus via fiscal policy. That puts the strain on monetary policy and on the Fed.

Ben Bernanke, the Fed's chairman, laid the groundwork for a new round of QE in speeches over recent months, citing persistently high unemployment and a weak housing market as a threat to the sustainability of the economic recovery. Under the first QE programme, launched at the apex of the credit crisis, the Fed bought $1.7 trillion of US government debt and mortgage-related securities, designed to bring down the cost of borrowing for homebuyers and businesses. It promised yesterday that interest on those investments, and income it gets when the bonds are repaid, will be used to augment the new QE programme.

Adding the new and continuing programmes together, the Fed expects to buy $850bn-$900bn of Treasuries between now and the end of June 2011.

Jeff Kleintop, the chief market strategist at LPL Financial, said the size of the new money was a little ahead of Wall Street's estimates.

"The gap between disappointment and surprise is so narrow, but I think they may have threaded that gap," he said. "This provides the market with additional clarity. It now knows the size of the purchases, how long they're going to take place and the pace at which the Fed is going to conduct it. The question is whether this is enough." The Fed concluded its two-day monetary policy meeting against the backdrop of better than expected economic data yesterday.

The service sector, which employs 80 per cent of American workers, expanded for the 10th consecutive month, according to the Institute of Supply Managers survey. Orders for manufactured goods were up 2.1 per cent in September, after being flat in August.

A survey of private sector employees, by the payroll processing company ADP, suggested they created 43,000 jobs in October, twice as many as Wall Street had predicted.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
News
people
News
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own