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Friday, September 14, 2012
Bernanke Fights Back with QE3.
Ben S. Bernanke for the first time pledged that the Federal Reserve will buy bonds until the economy gets closer to his goals, cementing his place as the Fed’s most innovative chairman and signaling the battle against unemployment eclipses any concerns about inflation for now.
The central bank yesterday announced its third round of large-scale asset purchases since 2008, with the difference that it didn’t set any limit on the ultimate amount it would buy or the duration of the program. Instead, Bernanke said stimulus will be expanded until the Fed sees “sustained improvement” in the labor market.
Bernanke is “going to fight and fight until he sees a real improvement in the economy,” saidEthan Harris , co-head of global economics research at Bank of America Corp. inNew York . “He’s not going to let his critics stop him. He believes quantitative easing can help the economy and the Fed can avoid inflation, so he’ll just keep at it until there’s a real turn in the economy.”
Stocks rallied, sending benchmark indexes to the highest levels since 2007, and gold climbed after the Fed announced it would buy $40 billion of mortgage debt a month. The central bank also extended the prospect of near-zero interest rates until mid-2015 and said policy will stay accommodative “for a considerable time” even after the economy strengthens.
“This is a Main Street policy, because what we’re about here is trying to get jobs going,” Bernanke said at a news conference yesterday in Washington. “We’re trying to create more employment. We’re trying to meet our maximum employment mandate, so that’s the objective.”
Harris, a former researcher at the Federal Reserve Bank of New York , said he expects the Fed to continue buying bonds until the unemployment rate, which was 8.1 percent in August, declines to 7 percent. The rate has been stuck above 8 percent since February 2009, when the nation was still mired in a recession.
When the Fed’s current program to swap short-term Treasuries with longer-term securities expires at the end of the year, the central bank will also start outright purchases of U.S. government debt , according to Harris, the author of “Ben Bernanke ’s Fed: The Federal Reserve After Greenspan.”
Bernanke said he isn’t worried about the economy “overheating any time soon” and that the Fed has delivered on its mandate of price stability since the mid-1990s. Central bankers can use communication tools like the interest-rate guidance into 2015 to ease policy because they have “considerable credibility,” he said.