Wall Street Journal (09/14/12) Jon Hilsenrath; Kristina Peterson
The Federal Reserve on Thursday launched an aggressive program to spur the economy and boost employment through open-ended commitments to buy mortgage-backed securities and a promise to keep interest rates low for years. The most significant of its new moves entails the central bank purchasing $40 billion of mortgage-backed securities every month and continuing to buy them until the job market improves—an unusually strong commitment by the Fed. “If the outlook for the labor market does not improve substantially, the [Fed] will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ other policy tools as appropriate until such improvement is achieved in a context of price stability,” the Fed said in its postmeeting statement.
That statement was unusual in that it explicitly linked future decisions to improvement in the job market. Bernanke noted Thursday that the longer people are out of work, the more difficult it can be to return to the job market.
Economists polled by the Wall Street Journal prior to the Fed’s decision said that a theoretical $500 billion Fed bond-buying program would cut the 8.1% unemployment rate by just 0.1 percentage point in a year’s time. Bernanke acknowledged the point and provided a comprehensive response. “I personally don’t think [the bond-buying program] is a panacea,” he said. “I personally don’t think it is going to solve the problem” of weak growth and high unemployment. But, he said, the Fed could help to “nudge the economy in the right direction” with its program.
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