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August 11, 2010    

US Fed introduces “QE Lite” to boost economy

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by Kay Murchie

The Federal Reserve has elected to keep US interest rates at the historically low level of between 0% and 0.25%, as widely expected.

Interest rates in the world’s largest economy have been at the low level since December 2008 and the bank has previously said that as a result of subdued inflation and high unemployment, low interest rates are required for “an extended period”.

However, the US central bank has taken action to boost the struggling economy by reviving the “quantitative easing” (QE) scheme – a method introduced by the Bank of England to stimulate growth within the economy.

The option it has taken has been dubbed “QE lite” by some economists.

Federal Reserve chairman, Ben Bernanke, has branded the process “credit easing” as opposed to QE.

He said the US version differs from a straightforward QE scheme, “where the focus of policy is the quantity of bank reserves” rather than targeting the mix of loans and securities held by the central bank.

Meanwhile, in a statement, the Fed said: “Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.”

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