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As expected by the market, the Federal Reserve announced another round of monetary easing or QE3 at the conclusion of their FOMC meeting.
Under the new asset purchase program, the Fed will buy $40 billion of agency mortgage-backed securities each month, starting Friday. This is in addition to the current purchases of long-term securities under ‘Operation Twist’. Under the two programs, the Fed will be buying about $85 billion of longer-term bonds each month through the end of the year.
The important change in the current program is that this is an ‘open-ended’ program. The Fed will continue to buy bonds until they see a substantial improvement in the job market.
From the statement “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”
Additionally, the Fed extended the interest rate guidance– that the interest rates would remain at exceptionally low levels to at least mid-2015 from late-2014 earlier. (Read: Commodity ETFs in Focus as Fed Unleashes QE3)
Do you think that the new the program will help bring down the mortgage rates further and support the housing market? And will it take the stock market to higher levels?
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