Fed Looking To Jumpstart Economy With Bond Purchases


A new program begins Friday that could boost our economy.

Federal Reserve Chairman Ben Bernanke says the Fed will spend $40 billion a month to buy mortgage bonds, which will make it more affordable for people to buy a home. The Fed intends to continue buying bonds until the job market substantially improves.

The Fed is under pressure to act because the U.S. economy is still growing too slowly to reduce high unemployment. The unemployment rate has topped 8 percent every month since the Great Recession officially ended more than three years ago.

The move, known as Quantitative Easing or QE, works by driving up prices, pushing down interest rates and reducing availability of bonds in the market, which forces investors to turn to corporate bonds--essentially lending money to company. In a lecture to George Washington University in March, Bernanke said that a desired outcome of QE is to push more money into the banking system, prompting banks to lend more to customers and businesses, and hopefully translating into home and auto purchases, and increased business spending, energizing the sluggish economy.

Critics of QE say the move could cause higher inflation down the road. Bernanke said the Feds are taking action to ensure inflation does not occur, but skeptics say the sale of trillions of dollars of bonds in the open market could drive up interest rates and slow, rather than accelerate, the economic recovery.

The announcement has already had a positive impact on the world stock market, sending stocks surging upward Thursday and Friday with the news.

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