Fed acts to bolster US economy

The US central bank has announced it will resume its policy of pumping more money into the economy via so-called quantitative easing.

The Federal Reserve said it will buy “additional agency mortgage-backed securities at a pace of $40 billion per month”.

The central bank also said it could increase the size of its purchases if the economy does not improve.

The economy is a pivotal issue in this year’s US presidential election.

The US central bank has announced it will resume its policy of pumping more money into the economy via so-called quantitative easing

Interest rates in the US have been close to zero for several years now, and the Fed again kept them at below 0.25%.

“The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” said the Fed, led by chairman Ben Bernanke.

US stocks, which had been little changed, gained after the announcement. The benchmark Dow Jones average was 0.7% higher.

The US central bank has tried to support the economy by quantitative easing – buying $2.3 trillion in bonds in two rounds.

The Fed calls such measures “asset purchases”, where the central bank buys bonds to keep the long-term cost of borrowing down. The last round of asset purchases ended last year.

Mortgage-backed securities are debt backed by loans made to homeowners.

The unemployment rate in the US has been above 8% since January 2009, but the current 8.1% is down from the recent high of 10% in October 2009.

“To support continued progress toward maximum employment and price stability, the committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens,” the Fed said.

The Fed also confirmed that its $267 billion programme to reduce long-term borrowing costs for firms and households would continue for the rest of the year.

In a move dubbed “Operation Twist”, the central bank buys longer-term bonds from retail lenders and swaps them for shorter-term bonds.

US unemployment remains elevated, says Federal Reserve US economy grew more than expected in Q3 2012 Oil prices rise for the eight session in a row after Fed move Japan economy enters contraction starting with Q3 2012 Mario Draghi unveils European Central Bank’s bond-buying euro debt plan US economy added 171,000 new jobs in October, says Labor Department German economy slows sharply in 2012 China’s Central Bank cuts benchmark interest rates

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