Federal Reserve Blog

Finance Blogs » Federal Reserve » Fed tries to steer a deft course

Fed tries to steer a deft course

By Sheyna Steiner · Bankrate.com
Thursday, September 13, 2012
Posted: 12 pm ET

After months of equivocating, the Federal Reserve has pulled out the big guns. The central bank's rate-setting Federal Open Market Committee will start its third large-scale asset purchase plan -- which makes it officially QE3.

In the statement released Thursday afternoon, Federal Reserve Chairman Ben Bernanke offered some details about the new plan. The central bank plans to buy $40 billion a month in mortgage-backed securities.

At the same time, the committee announced that the target for the short-term federal funds rate will remain between zero percent and 0.25 percent until "at least through mid-2015." Previously, the Fed had implied that it would keep the benchmark rate near zero percent until 2014.

The central bank will continue the maturity extension program known as Operation Twist, in which short-term Treasury securities in the Fed's portfolio are exchanged for longer-term government bonds in order to push down long-term interest rates.

Operation Twist began in September 2011 with the purchase and redemption of $400 billion worth of securities. The program was extended this June, with another $267 billion in Treasury securities to be swapped in the last half of the year.

Despite the move, the outlook for consumers remains much the same as before: Borrowing rates will remain low for the foreseeable future while the disappointing interest rates on savings will continue to crush retirees, those near retirement and the frugal.

«
»
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.