By TraderVox.com
Tradervox.com (Dublin) – After a two-day meeting, the Federal Open Market Committee resolved to undertake a quantitative easing program, which involve open-ended purchases of mortgage debt worth $40 billion as the Fed aims to expanding its holdings of long term securities to boost economic growth and salvage the labor market. Federal Reserve Chairman said in a press conference after the meeting that the Fed is focusing on sustained improvement in the labor market. The move sent stocks high, with benchmark indexes rising to 2007 levels. The price of gold increased as Fed indicated it would continue buying assets. Bernanke’s move has been opposed by many republican politicians who have claimed that the policies will damage the economy.
The FOMC will also hold interest rates close to zero for longer that its previous forecast of late 2014. It extended this to mid-2015 in a statement where it indicated that accommodative monetary stance is appropriate for the economy to recover and the labor market to improve. Unemployment rate, which has been above 8 percent since 2008, has been termed as a “grave concern” and is seen as the main reason the Fed has moved to make a third round of asset purchases. The move has boosted global equity, with the Standard & Poor’s 500 Index climbing by 1.6 percent to 1,459.99 at the end of trading in New York yesterday. Crude oil climbed by 1.3 percent to 98.31 per barrel as gold appreciated to a price last seen in February.
Julia Coronado, who is a former Fed Economist and currently the chief economist at BNP Paribas said that the announcement marks a significant shift in the FOMC policy. She added that it is an aggressive commitment to succeed in the Federal Reserve’s mandate. Fed’s commitment to improved labor market was evident in the statement where Bernanke said that the open-ended purchases would continue until a considerable improvement in the labor market was realized.
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