Fed Launches $600 Billion Bond Buy to Lift Economy

The Federal Reserve's policy panel said Wednesday it will buy $600 billion in long-term U.S. bonds through next June to get the economy on a stronger track because until now progress in cutting unemployment and spurring demand has been "disappointingly slow."

The purchase comes on top of a longstanding policy by the Fed, the nation's central bank, to create enough new money daily to keep short-term interest rates near zero.

The new program, a second round of the emergency "quantitative easing" it used during the financial crisis, aims to lower long-term rates and make it cheaper for businesses and individuals to borrow money.

By The Numbers: U.S. Trade.

The pace of the "QE2" bond purchases will be about $75 billion per month, said its policy-setting Federal Open Market Committee. It will also regularly review the impact and "adjust the program as needed to best foster maximum employment and price stability," the FOMC said.

Already, the Fed was reinvesting principal payments from federal agency debt it holds and agency mortgage-backed securities, using that money to buy long-term Treasury bonds. That should have it reinvesting up to $300 billion through the 2011 second quarter, the FOMC said, for a total long term bond purchase of up to $900 billion through June or about $110 billion a month.

Until now, Fed Chairman Ben Bernanke and most other Fed policymakers have worried that economic growth and inflation have both been too slow, reflecting weak consumer demand that is not enough to reduce the jobless rate.

Fed officials have debated whether to attempt QE2, how big to make it and how long it should continue. One FOMC member, Kansas City Fed President Thomas Hoenig, voted against the new program.

Its size is also a subject of debate among economists and within financial markets over how much additional money creation is needed to get the economy out of its doldrums. In the run-up to the Fed action, the U.S. dollar weakened in recent months against other major currencies, and some U.S. trading partners have voiced concern that the Fed program and its dollar impact unfairly aids U.S. exporters in foreign markets.

-- Contact John D. Boyd at jboyd@joc.com.