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Fed to continue buying bonds to spur growth

The Federal Reserve announced its plans to stimulate the economy, including buying bonds to spur growth.

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Federal Reserve Chairman Ben Bernanke. (AFP/Getty Images)

The Federal Reserve on Thursday announced a series of actions designed to stimulate growth in the still-weak economy, making it easier for consumers and businesses to borrow and spend, the Associated Press reported.

The Fed said it would spend $40 billion a month buying mortgage-backed securities, the AP said.

US stocks surged following the news. The Dow Jones industrial average was at a four-year high in afternoon trading, while the Standard & Poor's 500 index and Nasdaq composite index each posted gains of more than 1.5 percent, according to the AP.

However, the AP noted that skeptics warn that bond buying might not provide much benefit. Critics of the Fed's plan also warn of the risk of higher inflation.

Following a meeting of its policy-making committee, the Fed also said it would hold short-term interest rates near zero until mid-2015, according to The New York Times.

The statement released by the Fed said the economy was expanding at "a moderate pace" but that "growth might not be strong enough to generate sustained improvement in labor market conditions," according to The Times.

The Times noted that eleven members of the committee voted in favor of the action, with Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissenting.

More on GlobalPost: US jobs report boosts expectations for more Federal Reserve stimulus

The latest effort is scaled down from previous efforts, which saw the Fed purchasing $100 billion in securities each month. To date, the Fed has supported the economy with "quantitative easing," buying $2.3 trillion in bonds, said the BBC.

"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," said the Fed, according to the AP.

More on GlobalPost: Ben Bernanke signals further Federal Reserve stimulus

http://www.globalpost.com/dispatch/news/regions/americas/united-states/120913/fed-continue-buying-bonds-spur-growth