Fed Gets Ready to Pump $600 Billion More Into US Economy

04 November 2010

This is the VOA Special English Economics Report.

The Federal Reserve calls America’s economic recovery "disappointingly slow." So the Federal Reserve decided Wednesday to add six hundred billion dollars to the financial system by the middle of next year. To do this, the central bank will buy Treasury securities from dealers.

The action is known as quantitative easing. The goal is to reduce long-term interest rates. The hope is to create conditions where businesses will invest more and people will spend more.

Buying longer-term Treasury securities will make less government debt available to investors. This will raise the price. As bond prices rise, their rates fall.

Long-term securities affect rates on home mortgages and other loans. Lower rates on corporate bonds could lead businesses to invest in more equipment and jobs.

Lowering short-term interest rates is the Federal Reserve's main way to get banks to increase lending. But those rates are already near zero.

The Fed earlier bought one trillion seven hundred fifty billion dollars of Treasuries and other securities. That program ended in March.

Fed Chairman Ben Bernanke, writing in The Washington Post, said "Easier financial conditions will promote economic growth." But interest rates are already low. And critics say further cuts are unlikely to create much growth.