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
News
ebooksAn unforgettable anthology of contemporary reportage
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

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
Fifa corruption: Strip Qatar of the World Cup? Not likely

Strip Qatar of the World Cup? Not likely

But if a real smoking gun is found, that might change things, says Tom Peck
Twenty two years later Jurassic Park series faces questions over accuracy of the fictional dinosaurs in it

Tyrannosaurus wrecked?

Twenty two years on, Jurassic Park faces questions over accuracy
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
Genes greatly influence when and how many babies a woman will have, study finds

Mother’s genes play key role in decision to start a family

Study's findings suggest that human fertility is still evolving
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Rafa Benitez Real Madrid unveiling: New manager full of emotion at Bernabeu homecoming

Benitez full of emotion at Bernabeu homecoming

There were tears in the former Liverpool manager’s eyes as he was unveiled as Real Madrid coach. But the Spaniard knows he must make tough decisions if he is to succeed
England can win the Ashes – and Elvis Presley will present the urn

England can win the Ashes – and Elvis will present the urn

In their last five Test, they have lost two and drawn two and defeated an India side last summer who thought that turning up was competing, says Stephen Brenkley
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)