Fed to spend $40 billion a month on bond purchases

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WASHINGTON (AP) — The Federal Reserve unleashed a series of aggressive actions Thursday intended to stimulate the still-weak economy by making it cheaper for consumers and businesses to borrow and spend.

The Fed said it will spend $40 billion a month to buy mortgage-backed securities for as long as it deems necessary. It plans to keep short-term interest rates at record lows through mid-2015 — six months longer than it previously had planned. And it’s ready to take other unconventional steps if job growth doesn’t pick up.

A statement from the Fed’s policy committee said it thinks “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

The committee announced the series of bold steps after a two-day meeting. Its actions pointed to how sluggish the economy remains more than three years after the Great Recession ended.

Stock prices rose on the news, but some economists said they thought the benefit to the economy would be slight.

“We doubt it will be enough to get the economy on the right track,” said Paul Ashworth, an economist at Capital Economics. “It’s only a matter of time before speculation begins as to when the Fed will raise its purchases from $40 billion a month.”

The Dow Jones industrial average rose nearly 100 points shortly after the announcement at 12:30 p.m. EDT. The dollar dropped against major currencies, and the price of gold shot up about $16 an ounce, roughly 1 percent, to $1,750.

The statement was approved on an 11-1 vote. The lone dissenter was Richmond Fed President Jeffrey Lacker, who worries about igniting inflation.

The Fed’s bond purchases have been intended to lower long-term rates to spur lending. The Fed previously has bought $2 trillion in Treasury bonds and mortgage-backed securities since the 2008 financial crisis.

Skeptics caution that further bond buying might provide little benefit. Rates are already near record lows. Critics also warn that more bond purchases raise the risk of higher inflation later.

With less than eight weeks left until Election Day, the economy remains the top issue on most voters’ minds. Many Republicans have been critical of the Fed’s continued efforts to drive interest rates lower, saying they fear it could ignite inflation.

The Fed is under pressure to act because the U.S. economy is still growing too slowly to reduce high unemployment. The unemployment rate has topped 8 percent every month since the Great Recession officially ended more than three years ago.

In August, job growth slowed sharply. Employers added just 96,000 jobs, down from 141,000 in July and well below what is needed to bring relief to the more than 12 million who are unemployed.

The unemployment rate did fall to 8.1 percent from 8.3 percent, but that drop was due to many Americans stopping their search for work, so they were no longer counted as unemployed.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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