By Vicki Needham - 11/03/10 06:29 PM EDT
The Federal Reserve announced on Wednesday that it plans to purchase $600 billion of Treasury bonds through June of 2011 in an effort to steady the nation’s shaky economy.
After a two-day meeting, the Federal Open Market Committee (FOMC) announced a plan to buy securities at a pace of about $75 billion per month. The move will keep interest rates low for home and business loans, making it cheaper for Americans to borrow money.
The Federal Reserve will essentially be printing money in hopes that low interest rates will convince Americans that it’s time to start making large purchases again. The action, known as “quantitative easing,” is designed to "promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate," the FOMC said.
The FOMC framed the move as necessary to help the struggling economy, which is emerging from recession at a sluggish pace.
"Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the committee judges to be consistent, over the longer run, with its dual mandate," the FOMC said in a statement. "Although the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
Stocks dropped in response to the announcement, which had been expected, but rose by the end of Wednesday.
Republicans pounced on the move, arguing it would weaken the dollar and promote inflation.
"The Fed’s actions will lead to inflation and undermine the purchasing power of an already vulnerable middle class," said Rep. Cathy McMorris Rodgers (R-Wash.). "Instead of facilitating President Obama’s spend-and-borrow addiction, the Federal Reserve needs to protect the integrity of the dollar.
Fed officials voted to maintain an interest rate near zero and again said that economic conditions are "likely to warrant exceptionally low levels for the federal funds rate for an extended period."
Kansas City Federal Reserve Bank President Thomas Hoenig voted against the policies, saying he "believed the risks of additional securities purchases outweighed the benefits." He also expressed concern that "that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy."
Hoenig has been a vocal opponent of holding interest rates low, saying they need to gradually increase to spur economic growth.