Fed Announces Q3 Stimulus But With a Twist

AOL Daily Finance is reporting on the AP's early afternoon announcement that it would go with another round of economic stimulus. The move by Fed Chairman Ben Bernanke was no surprise as the Fed Chair has recently signaled The Fed would take steps if necessary to provide an impetus for spurring the economy.

Of particular note is the method for which The Fed will interject stimulus: monthly purchase of Mortgage back securities (bonds).

The New York Times' Binyamin Applebaum puts QE3 in context:

"The scale of the new effort is significantly smaller than the Fed's previous rounds of asset purchases. The Fed purchased about $100 billion in securities each month during those campaigns. It said Thursday that it would target a rate of about $40 billion a month during the current campaign, although unlike those earlier efforts, the volume is now subject to adjustment.

"The new purchases will mark the first time in more than two years that the Fed has expanded its holdings of mortgage bonds. That decision reflects the Fed's view that the housing market still needs help, and that lower rates on mortgage loans could provide significant benefits for the broader economy."

Daily Finance 

Fed to Spend $40 Billion a Month on Bond Purchases
By The Associated Press 

Posted 1:00PM 09/13/12Posted under: Market NewsBy MARTIN CRUTSINGER, AP Economics Writer
WASHINGON (AP) - The Federal Reserve says it will spend $40 billion a month to buy mortgage-backed securities for long as necessary to stimulate the still-weak economy and reduce high unemployment.
It also extended a plan to keep short-term interest rates at record lows through mid-2015. And it said it's ready to take other steps to boost the economy even after it strengthens.
The Fed announced the series of bold steps after its two-day policy meeting ended Thursday. Its actions pointed to how sluggish the economy remains more than three years after the Great Recession ended.
"We're not sure what the economic effects of this program will be - it should help growth and employment on the margin," Dan Greenhaus, chief global strategist at BTIG LLC, said in a research note.
Stocks rose after the announcement. The Dow Jones industrial average was up 15 points for the day just before 12:30 p.m. It surged by 105 points within minutes of the announcement, then gave up some gains to be just 35 points higher.

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