Federal Reserve Blog

Finance Blogs » Federal Reserve » Fed takes the middle ground

Fed takes the middle ground

By Greg McBride, CFA · Bankrate.com
Wednesday, November 3, 2010
Posted: 4 pm ET

The Federal Open Market Committee announced a $600 billion bond purchase program, to take place now through June 2011, in an effort to stave off any threat of deflation and kick start the economy. While the program will likely succeed in avoiding deflation -- many would argue we'll avoid it anyway -- this doesn't solve our economic problems.

The Fed has taken the middle ground, with $600 billion -- an amount that is more than the $500 billion that was expected, but not the shock and awe seen in round one of quantitative easing during 2009. The Fed also stated a definitive time frame, saying the purchases will take place between now and "the end of the second quarter of 2011, a pace of about $75 billion per month." Frankly, I had expected an open-ended program that would have given the Fed the flexibility to seamlessly maintain the purchases into the future or scale back should conditions warrant. The Fed did insert the obligatory statement that they'll "adjust the program as needed," but actions speak louder than words.

The Fed may succeed in lowering rates for things like mortgages and corporate borrowing, but my skeptical eyes see a program that is more likely just to keep a lid on rates rather than bringing them appreciably lower.

The would-be consumer borrowers the Fed is aiming to reach with its latest effort are still burdened by being upside down and either living on a reduced income or being out of work entirely. And printing another $600 billion doesn't change that.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
4 Comments