[size=18]Fed Pulls Trigger, to Buy Mortgages in Effort to Lower Rates
The Federal Reserve fulfilled expectations of more stimulus for the faltering economy, taking aim now at driving down mortgage rates.
The Fed said it will buy $40 billion of mortgages per month in an attempt to foster a nascent recovery in the real estate market.
"The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," the Open Market Committee said in a statement.
With a summertime rally pinned on hopes for aggressive central bank intervention - both in the U.S. and Europe - the Fed instead split the difference Thursday, offering a quantitative easing program the aggressiveness of which will depend on the strength of the recovery.
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The stock market, which had been slightly positive prior to the decision, shortly after 12:30 p.m., advanced while bond yields edged lower.
Faced with an unemployment rate stubbornly above 8 percent and other indicators showing only halting signs of recovery, the Fed was pressed into action by a market worried that the nascent recovery was on wobbly ground and needed more stimulus.
Two previous rounds of QE had uneven effects on economic growth though they did manage to levitate stock prices by more than 100 percent from their March 2009 lows.
In the latest version of the program, the Fed will buy assets - primarily Treasurys and mortgage debt - at a set level each month then monitor the effects.
Though the Fed is ostensibly politically independent, the decision comes at a ticklish time with the presidential election less than two months away.
Washington conservatives have been critical of the central bank's money creation, which has caused its balance sheet to swell to $2.8 trillion. They worry that the growing money supply will lead to inflation, which has reared its head in food and energy prices but has remained tame through the broader economy.http://finance.yahoo.com/news/fed-pulls-trigger-buy-mortgages-163638925.html