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Fed to buy $600 billion in bonds

Ben S. Bernanke, Chairman of the Federal Reserve, makes remarks at the inaugural meeting of the Financial Stability Oversight Council in Washington, DC.

TEXT OF STORY

JEREMY HOBSON: The Federal Reserve has two mandates. Keep inflation in check. And keep employment as high as possible. Yesterday, policymakers took a big step focused on the second mandate -- employment.

The central bank decided to buy $600 billion in U.S. government bonds. It's a process called Quantitative Easing.

From New York, Marketplace's Stacey Vanek-Smith explains.


STACEY VANEK SMITH: Quantitative easing is all about bonds.

JAMES BOND MUSIC

SMITH: Not that bond, but the same coming-to-the rescue idea. The Federal Reserve buys up treasury bonds and other bonds from banks and prints money to buy them. That's supposed to get the ball rolling says money manager and author Stephen Leeb.

STEPHEN LEEB: Banks will have more money to lend, interest rates will stay low, will go down and both those factors will hopefully lead to stronger economic growth.

Typically the Fed's role is to raise interest rates to control inflation, or lower them to spur spending. Now that interest rates are near zero, the Fed Chairman Ben Bernanke has to try something else. Karen Petrou is with Federal Financial Analytics. She says Quantitative Easing is an extraordinary measure.

KAREN PETROU: This is not what chairman Bernanke wants to see the fed doing, it's what he thinks he has to do.

Bernanke tried Quantitative Easing once before, during the financial crisis.

In New York, I'm Stacey Vanek-Smith for Marketplace.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.

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