United States – The Fed will invest 40 billion per month in the economy

The Central Bank of United States (Fed) announced Thursday that it would increase the amount of financial infusion under which it maintains the US economy to support the recovery of employment and the real estate market.

Its monetary policy Committee (FOMC) decided that it would buy back from Friday of new real estate asset backed securities issued by mortgage refinancing parastatals (Fannie Mae, Freddie Mac) of 40 billion dollars per month.

The Fed sets no end date to this new program which will create new currency, and indicates that it will continue if “the perspective of the labour market does not improve significantly.

She is even ready to increase its share repurchases or use “other means” (as play on the composition of its portfolio of titles, or specify more what would be its response to certain contingencies), to achieve this improvement as expected by the approximately 12.5 million unemployed officially in the country, but also by millions of other Americans forced to work part-time without power find better.

The Fed revised upward its forecast for growth in 2013 (at 2.5-3.0%). However, said its Chairman, Ben Bernanke, the employment situation “remains a matter of deep concern” and the Committee is concerned that, without additional measures, the growth is not strong enough to cause a “sustained improvement” of the labour market.

The FOMC also justified his action by the persistence of the crisis in Europe, which continues to threaten the US recovery, and its forecast of maintaining, until 2014, inflation below its target of 2.0%.

Money creation

The Federal Reserve also promised to maintain its interest rates near zero for more than three and a half years, at a level “unusually low” until mid-2015 at least if necessary.

The announcement was expected, but a number of analysts doubted that the Fed decides to start a new phase “of quantitative easing” creating new money to finance its bailouts of securities.

Since autumn 2008, the Fed has injected so 2300 billion in the financial circuit.

Critic

This policy is very controversial in the United States, by number of Republicans who accuse him of undermining the dollar, abroad by emerging countries who accuse him of destabilizing capital, and streams within the Fed by a number of leaders that it would cause a hardly controllable inflation futures and complicate the return to a normal monetary policy.

However, the FOMC believes that, combined with its current operations purchases and sales of securities in the financial markets, its new acquisitions of assets should “exert pressure on long-term interest rates downward, supporting the mortgage market and contribute to relax in all the financial environment”.

Aware of the limitations of these measures, Mr. Bernanke said that they were not “panacea” for the problems of the US economy.

But as Congress is completely blocked by the failure of Democrats and Republicans to agree on fiscal and economic issues, the Fed is the only one to have the means to act.

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