On Thursday, September 13, 2012, the Federal Reserve Bank (Central Bank or Feds) of the U.S. announced that it is initiating a plan to buy $40 billion a month worth of mortgage-backed securities for an indefinite time period. It is intended to stimulate job growth and speed-up the stagnating economic recovery. Since this is the third effort by the Central Bank to stimulate growth in recent time, it is dubbed as QE3.
The U.S. jobless rate stays over eight percent in the recent past and the Central Bank intends to lower it. The Feds didn’t indicate any target rate. However, they intend to pump money into the system as long as needed to bring down the unemployment rate. Along with this announcement, Feds also intend to keep the overnight interest rate near-zero until mid-2015. The Feds also intend to keep these efforts even after the jobless rate come down from where it is today. The existing bond buying program known as “Operation Twist” as well as the new QE3 will pump $85 billion into the system by the Feds.
The U.S. financial markets reacted positively for the Feds announcement. The S&P 500 hit a four-year high of 1465. The QE3 will also lower the mortgage rates.