Fed Not Ready to Launch QE3
The US Federal Reserve released the minutes from its latest policy meeting Tuesday, in which it appeared to be leaning against taking further action to stimulate the economy, dashing investors’ hopes for “QE3,” the much-anticipated third round of quantitative easing. The subject of QE3 was discussed at the meeting, but only a “couple” Fed Presidents supported it, unlike a few months ago when the number in favor was described as “a few.”
The central bank purchased $2.3 trillion worth of Treasury notes and mortgage backed securities through QE1 and QE2, in a so far successful program designed to keep interest rates low. The idea behind quantitative easing is that low interest rates by encouraging investment through easier access to cheaper credit. The Fed members that do not support QE3 argued that the economy is growing on its own, citing promising job gains over the last few months.
As for long term plans of the Fed, nine of the 10 votes on the Federal Open Market Committee supported the bank’s previously revealed plan of keeping interest rates low until 2014. The lone objector to the plan was Richmond Fed President Jeffrey Lacker, who said he believes the economy will recover enough before then so that low interest rates will not be necessary to drive growth. The release of the Fed’s minutes sent US stocks plunging, with the Dow sliding 74 points in less than 15 minutes around 2PM ET, though it recovered that loss and then some.