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Fed pumps money into flagging US economy

The US Federal Reserve plans to buy $US600 billion in government bonds by the middle of next year in an attempt to rejuvenate the flagging US economy.The decision, which has become known as QE2, for the Fed's second quantative easing, is aimed at lowering

Jamie Gray
Thu, 04 Nov 2010

The US Federal Reserve plans to buy $US600 billion in government bonds by the middle of next year in an attempt to rejuvenate the flagging US economy.

The decision, which has become known as QE2, for the Fed’s second quantative easing, is aimed at lowering borrowing costs for consumers and businesses still suffering in the aftermath of the global financial crisis.

The US central bank said it would buy about $US75 billion in longer-term Treasury bonds per month as part of the new programme.

The overall size of the program was slightly larger than the $US500 billion that many analysts had expected.

The central bank’s Federal Open Market Committee (FOMC) said the pace of recovery in America’s output and employment continued to be slow.

“Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit,” it said.

“Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak,” it said in a statement.

“Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters,” the FOMC said.

The committee said the decision to pump money into the economy was aimed at prompting stronger pace of economic recovery. 

Jamie Gray
Thu, 04 Nov 2010
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Fed pumps money into flagging US economy
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