While QE3 may have been a foregone conclusion for many on Wall Street, the scope of the new round of stimulus probably surprised many. Federal Reserve Chairman Ben Bernanke said today that it intends to purchase $40 billion in mortgage-backed securities per month until the the job market improves, providing no cap or end date for the new plan.
While the amount may or may not reach the $600 billion mark of QE2, the move does show the Fed’s commitment to using its resources to help stimulate growth in the recovering economy. The Federal Open Market Committee meeting concluded Thursday with an 11-1 vote for the program.
“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability,” the FOMC stated.
The Fed will also extend its policy for the federal funds rate at near-zero percent to at least mid-2015 from the previous target date of late-2014. The indefinite commitment to more easing is a different approach than the previous lump-sum bond purchases that the Fed applied, which produced mixed results at best toward spurring more economic growth.
Wall Street seems to approve the move. Stocks were trading flat before news of QE3 was released but have popped higher in response. The S&P 500, Nasdaq and Dow Jones Industrial Average are all up about 1.5 percent. Gold spiked higher by over 2 percent, and oil is up 0.89 percent.