America’s central bank on Wednesday announced that it would pump an additional $600 billion into the ailing US economy over the next eight months in an attempt to accelerate growth and cut unemployment.
Expressing concern at the sluggish recovery from the worst downturn since the Great Depression, the Federal Reserve said it would buy $75billion of long-term Treasury bills each month until the middle of next year. The expansion of the Fed’s quantitative easing programme was accompanied by a pledge to keep interest rates at ultra-low levels for an ‘extended period’, which Wall Street took as a commitment to leave borrowing costs unchanged for at least the next two years.
Market reaction to the widely anticipated announcement was initially lukewarm, with some disappointment in New York that the package of support for the economy had not been bigger. Hopes of a fresh $1trillion boost to activity were dashed, although the Fed did announce that the $600billion injected would be topped up by around $250 billionof re-invested assets, mainly mortgages.
In addition, the US policymakers left the door open for an even bigger injection of electronic money into the economy should growth continue to remain weak.
Oil rose to a six-month high of $85 a barrel for US light crude on predictions that the extra liquidity being pumped into global markets by the Fed would discourage investors from buying low-yielding government stock in favour of speculating on commodity prices.
Analysts said that the price of gold was likely to rise in response to the move. The Fed explained that it had been motivated by the high level of unemployment — currently 9.6% - and the continued weakness in the housing market.