Fed to spend $40 billion a month on bond purchases

Fed to spend $40 billion a month on bond purchases

September 13th, 2012 by Associated Press in Local - Breaking News

By MARTIN CRUTSINGER

AP Economics Writer

WASHINGON - The Federal Reserve says it will spend $40 billion a month to purchase mortgaged-back securities because the economy is too weak to reduce high unemployment. The Fed says it will keep buying the securities until the job market shows substantial improvement.

The Fed also extended a plan to keep short-term interest rates at record-low levels through mid-2015. Both steps were announced after the Fed's two-day policy meeting.

The bond purchases are intended to lower long-term interest rates to spur borrowing and spending. The Fed has previously 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.