QE3 has landed: The Fed gets aggressive

Here is the U.S. Federal Reserve Board’s full statement announcing a third-round of so-called “quantitative easing.” They have committed to an open-ended policy of easy money: buying government bonds and mortgage-backed securities to keep interest rates low in the long-term in order to stimulate the economic recovery. They are taking a very long term approach: “The accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

The step reflects the Fed’s very glum view of the U.S. economy:

The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.

Their plan is big and open-ended:

“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”