22 Sep 2011

Fed intervening in markets to stimulate growth

6:46 pm on 22 September 2011

The central US bank, the Federal Reserve, has announced new measures to tackle the weakness in the American economy. It plans to intervene in financial markets.

Launching its long-awaited "Operation Twist", the Fed said it will intervene in financial markets to try to bring down the cost of borrowing and stimulate growth.

It will spend about $US400 billion buying back bonds maturing within three years and swapping them for longer-term debt.

Although ithe strategy puts no new money into the economy, it should help keep long-term interest rates down and boost mortgage lending and loans to businesses.

The markets reacted negatively, with the S&P 500 falling by 3% on the news. The Dow Jones closed down 2.5% and the Nasdaq was 2% down.

The BBC reports the Fed's move comes amid deepening gloom about the global economy, with the International Monetary Fund slashing growth estimates for the US, Europe, and Japan.

On Wednesday, the Bank of England said members of its monetary policy committee had considered a new round of quantitative easing to pump money into the economy.

First used in the 1960s, Operation Twist was named after a dance craze of the time.