Fed announces QE3

The Federal Reserve finally launched the widely-anticipated QE3 after its monetary policy meeting on Thursday. Bloomberg reports:

The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.

“We’re looking for ongoing, sustained improvement in the labor market,” Chairman Ben S. Bernanke said in his press conference today in Washington following the conclusion of a two-day meeting of the Federal Open Market Committee. “There’s not a specific number we have in mind. What we’ve seen in the last six months isn’t it.”

Short-term rates will also be kept low for longer.

The FOMC also said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

Ironically, this comes as the Fed raised it economic projections. Growth is now forecast to improve to as much as 3 percent next year and as much as 3.8 percent in 2014, up from upper estimates of 2.8 percent and 3.5 percent in the previous forecasts, while unemployment is now forecast to fall to 6.7 percent to 7.3 percent by 2014 compared with 7 percent to 7.7 percent in the June projections.

Market response to the Fed move was predictably positive. The S&P 500 climbed 1.6 percent, oil rose 1.3 percent and gold jumped 2.2 percent.