News / USA

US Central Bank Adopts New Stimulus to Boost Economy

Federal Reserve Chairman Ben Bernanke gestures as he speaks during a news conference at the Federal Reserve Board in Washington,  December 12, 2012.
Federal Reserve Chairman Ben Bernanke gestures as he speaks during a news conference at the Federal Reserve Board in Washington, December 12, 2012.
VOA News
The U.S. central bank says it is embarking on a new plan to buy government securities, its latest effort to keep borrowing rates low and to boost the sluggish American economy.

Federal Reserve policy makers in Washington agreed Wednesday to buy $45 billion worth of government bonds each month, beginning in January, in addition to the $40 billion worth of real estate-related securities the central bank already is buying monthly.

Taken together, Federal Reserve Chairman Ben Bernanke said the asset purchases should exert "downward pressure" on long-term interest rates to encourage U.S. business growth and expand its labor market.

The Federal Reserve also said it would keep its benchmark lending rate at between zero and a quarter of a percentage point, and maintain it at that historically low level as long as the nation's jobless rate remains above 6.5 percent and consumer price inflation is limited. The U.S. unemployment rate has been falling, but still was pegged at 7.7 percent in November.

Bernanke said it could be mid-2015 before the U.S. jobless rate goes down to 6.5 percent. He said high unemployment has been devastating for the country.

"The conditions now prevailing in the job market represent an enormous waste of human and economic potential," he said. "The return to broad-based prosperity will require sustained improvement in the job market, which in turn requires stronger economic growth."

In a statement after a two-day meeting, the Fed said it felt compelled to start the new bond-buying program because "without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions."

Keeping interest rates low

One analyst, Greg McBride with Bankrate.com, said he thinks the Fed's action could boost the American economy.

"I expect it will push long-term interest rates lower, which means lower fixed mortgage rates, lower corporate borrowing rates," McBride said. "I think it will further fuel a stock market rally, depending on what happens with the fiscal cliff.”

The central bank has pumped hundreds of billions of dollars into the U.S. economy over the last two years through the purchase of government bonds and real estate-related securities. But the world's largest economy only advanced at a modest pace, 2.7 percent in the July-to-September period, as it recovers from the steep economic downturn in 2008 and 2009.


What is the U.S. Fiscal Cliff?

  • An agreement intended to force politicians to compromise and make deals.
  • Without a deal by January 1, 2013, sharp spending cuts would hit military and social programs.
  • Tax hikes also would go into effect.
  • The combination would reduce economic activity, and could boost unemployment and push the nation back into recession.
The Fed predicted the U.S. economy could advance by as much as 3 percent next year and 3.5 percent in 2014.

The impending "fiscal cliff"

The central bank adopted the new stimulus as President Barack Obama and Congress are engaged in contentious negotiations on how to resolve key government tax and spending issues by the end of the year. Bernanke said it is critical that they reach a compromise.

Washington is calling it a "fiscal cliff," about $500 billion worth of mandated spending cuts in key government programs and the expiration of tax breaks for most American workers that are set to take effect January 1, unless an alternative financial plan is adopted.

Independent analysts said that if the White House and Mr. Obama's Republican opponents in Congress do not reach agreement, the spending cuts and tax increases could push the American economy into its second recession in three years, possibly adversely affecting the world economy as well.

You May Like

Ukraine Purges Interior Ministry Leadership With Pro-Russian Ties

Interior Minister Avakov says 91 people 'in positions of leadership' have been fired, including 8 generals found to have links to past pro-Moscow governments More

US Airlines Point to Additional Problems of any Ebola Travel Ban

Airline officials note that even under travel ban, they may not be able to determine where passenger set out from, as there are no direct flights from Liberia, Guinea or Sierra Leone More

Nigerian President to Seek Another Term

Goodluck Jonathan has faced intense criticism for failing to stop Boko Haram militants More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Talks to Resume on Winter Gas for Ukrainei
X
Al Pessin
October 25, 2014 4:21 PM
Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Talks to Resume on Winter Gas for Ukraine

Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Smugglers Offer Cheap Passage From Turkey to Syria

Smugglers in Turkey offer a relatively cheap passage across the border into Syria. Ankara has stepped up efforts to stem the flow of foreign fighters who want to join Islamic State militants fighting for control of the Syrian border city of Kobani. But porous borders and border guards who can be bribed make illegal border crossings quite easy. Zlatica Hoke has more.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.

All About America

AppleAndroid