Posted By Lambchop
QE3 Today's the Day. The Fed announces round three of Quantitative Easing:
1. The Fed says it will spend $40 billion a month to buy mortgage-backed securities
2.The Fed extended a plan to keep short-term interest rates at record lows through mid-2015.
The Fed is trying to keep interest rates low by purchasing more securities with newly printed money (and cap rates on market-driven interest rates). Quantitative Easing is the only trick the Fed has up its sleeve left to hopefully achieve price stability, prevent a rise in interest rates, and lower unemployment.
Critics say that a third bond-buying program will not stimulate the economy because certain sectors of the economy are no longer sensitive to the lowering of interest rate.
Expect there to be a political cost with this annoucement - not good news for the Obama administration because many critics of QE view it as passing the buck and glossing over the real economic problems. There are most likely diminishing returns with this next shot in the arm.