The Fed has been trying to stimulate the economy for over three years now, and has exhausted its usual tool by keeping interest rates near zero since late 2008. Quantitative easing is an unconventional way of trying to lower rates further.
But given that the unemployment rate has remained above 8%, the Fed is still not satisfied.
“The weak job market should concern every American. It imposes hardship on people and a waste of human skills and talents,” Fed Chairman Ben Bernanke said in a press conference later Thursday.
Last week, the government’s jobs report showed hiring slowed substantially in August and the labor force shrank.
In its statement, the Fed indicated it will not only continue QE3, but also “employ its other policy tools” if the “labor market does not improve substantially.”
Bernanke also admitted that the Fed alone is not strong enough to fix the job market.
“I want to be clear — While I think we can make a meaningful and significant contribution to reducing this problem, we can’t solve it. We don’t have tools that are strong enough to solve the unemployment problem,” he said.
The Fed’s accommodative policies have been contentious from the start. Republicans often warn that as the Federal Reserve has expanded the money supply, it has set the economy up for rapid inflation in the future.
Meanwhile, economists expect the benefits to be minor, and the risks are uncertain. The first two rounds of quantitative easing lowered interest rates and fueled stock market gains, but banks haven’t been eager to lend out money readily.
Source: CNNMoney
