US jobless crisis pushes Fed to launch third stimulus round

Sep 14, 2012

‘Stunningly aggressive measures’ says FT as Ben Bernanke aims to boost US economy

POOR employment and growth figures in the United States have tipped the Fed's hand into launching a third round of stimulus spending that is potentially unlimited in size and duration.

By pumping $40bn per month into the US economy using a system of mortgage-backed securities, and keeping interest rates at below 0.25%, Federal Reserve chairman Ben Bernanke said he expected US growth to rebound in 2013 to as much as three per cent.

Though markets responded positively, Paul Ashworth, an economist at Capital Economics, told the BBC the measures did not go far enough. "It's only a matter of time before speculation begins as to when the Fed will raise its purchases from $40bn a month," he said.

The Fed's actions should be regarded as "a stunningly aggressive set of measures," says John Authors of the Financial Times, who reports that political pressure against taking action was intense. With no apparent inflationary pressure in the US economy and the housing market stabilising, the Fed acted under its mandate to ensure full employment.

Unemployment now stands at 8.1 per cent, and the FT believes the stimulus will continue until the rate has dropped below seven per cent, at least. With manufacturing orders at their lowest in three years, there's real prospect growth could dip below two per cent and toward recession.

With Washington in political gridlock ahead of November’s presidential election, Bernanke had no choice but to act. "This is an open-ended commitment to print money," says Authors.

The BBC's Mark Mardell points out that conservatives are going to be unhappy with the move, especially given
that a sizeable faction within the Republican party would like to see the Fed abolished.

Given his recent tendency toward undiplomatic commentary, Romney was limited in his remarks. "After four years of
stagnant growth, falling incomes, rising costs, and persistently high unemployment, the American economy doesn't need more artificial and ineffective measures," he said. “We should be creating wealth, not printing dollars.”

Sign up for our daily newsletter