After months of speculation about the US economy, the Federal Reserve goes big. It has announced its third round of quantitative easing or QE3 to give the economy a boost. But not everyone agrees that central banks should have so much power.
The Federal Open Market Committee or FOMC ended its 2 day meeting in Washington Thursday and announced stimulus measures the markets had been waiting for.
Ben Bernanke, chairman of Federal Reserve, said, "The FOMC decided today on new actions, electing to expand its purchases of securities and extend its forward guidance regarding the federal funds rate."
The Fed proposes an open-ended plan to purchase $40 billion a month in Mortgage Backed Securities or MBS to make home buying more affordable. They’ll also leave interest rates near zero percent at least through the year 2015 to encourage borrowing for small businesses. The Fed is ready to try more stimulus measures if hiring remains stagnant.
Ben Bernanke said, "The employment situation, however, remains a grave concern. While the economy appears to be on a path of moderate recovery, it isn’t growing fast enough to make significant progress reducing the unemployment rate. "
Stocks soared following the announcement, but critics, including business mogul Donald Trump, said the Fed was creating false numbers in the stock market. With the European Central Bank recently proposing that it have supervisory power over the banks in the Eurozone, it opens the debate as to how much power central banks should have on banking regulation.
Presidential hopeful Mitt Romney has made it clear that he would remove Ben Bernanke as Fed Chief if elected, which may signal a shift away from the Fed’s increasing powers.