Federal Reserve launches QE3

09/13/2012 1:00 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

It’s QE3—with a promise of QE3.5 if the economy needs it. And low short-term interest rates at least through the middle of 2015.

In other words, Wall Street got pretty much all the goodies it hoped for today. Watch in the next few days to see if this fuels the rally or turns into a “sell on the news” moment.

Today’s 12:30 p.m. New York time statement announced that the Federal Reserve’s Open Market Committee had agreed to a new program of quantitative easing. The program would be targeted at the mortgage-backed securities market and the Fed would buy those assets at a rate of $40 billion a month. The vote, the Fed announced, was 11-1. Richmond Fed president Jeffrey Lacker dissented as he has done for the last six committee meetings.

At a total of $480 billion in a year that pretty much matches Wall Street projections for a $500 billion program.

Here’s the key paragraph: “To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.”

The Fed committee also announced that it would continue Operation Twist, a program in which the Fed takes cash from maturing securities and uses it to buy longer-dated mortgage-backed securities in an effort to extend the average maturity of its portfolio and to drive down longer-term interest rates. That, the Fed estimates, will increase the central bank’s holdings of longer-term securities by $85 billion a month through the end of the year.

The Fed will keep the target range for the federal funds rate at 0% to 0.25% and expects to maintain that exceptionally low rate at least through the middle of 2015.

Federal Reserve chairman Ben Bernanke will hold his usual post-committee meeting press conference today at 2:15 New York time.
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