The U.S. Federal Reserve took aim at slow growth and high joblessness Thursday, announcing a new $40 billion per month bond-buying program as it slashed its 2012 growth forecast.
The Fed signaled that monetary easing efforts would remain in place until it sees substantial improvement in the U.S. jobs market, where 8.1% of Americans remain unemployed.
Pointing to weak growth and stagnation in hiring, the Fed said it would spend $40 billion on agency mortgage-backed securities each month in an open-ended operation, its third "quantitative easing" program in less than three years.
Monthly Purchases Rise to $85 Billion
"QE3" would take the U.S. central bank's total monthly purchases, including ongoing programs, to $85 billion a month, the Fed said.
That "should increase the downward pressure on long-term interest rates more generally, but also on mortgage rates specifically, which should provide further support for the housing sector, encouraging home purchases and refinancing," said Fed Chairman Ben Bernanke.
The effect should spill through to the broader economy, pushing up the prices of homes, stocks, and other assets that, the Fed hopes, will make Americans feel more comfortable and begin spending
If people feel that their financial situation is improved because the value of their house, or their stocks-invested retirement fund has gained value, "they're more willing to spend," Bernanke explained.
"That's going to provide the demand most firms need to be able to hire or invest."