Federal Reserve to Buy Debt

With the recovery flagging, the country's monetary policymakers hope the Fed's shopping spree, pumping billions into the economy, will help.

The Federal Reserve's latest policy action is aimed less at improving the economy than at preventing further deterioration. The strategy is to buy more time, for housing to stabilize, for consumers to pay down debt and resume spending, and for economic growth to increase to a sustained 3% clip. Faced with a "disappointingly slow" economy, Fed Chairman Ben Bernanke felt that the policymakers had little choice. GDP is growing at a meager 2%, much too low to spur job creation or to lower the unemployment rate, which stands at 9.6%, a tenth of a point higher than when the recession ended in June 2009.

With its key short-term interest rate near zero since December 2008, the Fed can't use that weapon. So it is turning to "quantitative easing," or QE. It will buy about $100 billion a month worth of Treasury debt for at least six months, effectively pumping funds into the system.

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Jerome Idaszak
Contributing Editor, The Kiplinger Letter
Idaszak, now retired, worked on The Kiplinger Letter as its economics writer for 21 years. Before joining Kiplinger in 1992, he worked for 15 years with the Chicago Sun-Times, including five years as a columnist and economic correspondent in the Washington, D.C., bureau, covering five international economic summit meetings. He holds bachelor's and master's degrees in journalism from Northwestern University.