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November 3, 2010    

Fed restarts stimulus programme as expected

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by Kay Murchie

Following a two-day meeting, US central bank, the Federal Reserve, has announced it will introduce a fresh round of stimulus.

The move was widely expected after concerns for the US economic recovery amid low inflation and rising unemployment.

The Federal Open Market Committee (FOMC) has agreed to inject an additional $600 billion (£373 billion), albeit higher than the $500 billion expected by many economists.

The move will see the bank buy up Treasury debt at a rate of $75 billion a month - a policy which has been branded “QE2“ (quantitative easing).

In a statement today, the Fed said: the “pace of recovery in output and employment remains slow. Household spending is increasing gradually, but remains constrained buy high unemployment, modest income growth, lower housing wealth and tight credit”.

The US central bank has already pumped more than $1.5 trillion into the economy to boost the recovery.

Last week, the Commerce Department revealed the US economy grew by an annualised 2% in the third quarter.

The rate of growth was slightly higher than the 1.7% reported in the previous quarter and according to analysts, suggest that a double-dip recession is unlikely in the world’s largest economy.

However, unemployment remains high and Friday’s figures are expected to reveal that the jobless rate remains steady at 9.6% for the third consecutive month.

Meanwhile, the Bank of Japan (BoJ) has brought its rate-setting meeting forward by 10 days and will take place tomorrow and Friday.

This is so the BoJ can respond to the measures that the US Fed has introduced as the Japanese yen continues to strengthen against the dollar, weakening demand for exports.

Meanwhile, the Bank of England will announce its decision on interest rates tomorrow. There has been speculation that the Bank may increase its quantitative easing (QE) programme.

However, recent strong data from the British economy suggests that the Bank will hold off injecting more money into the economy by way of its QE programme for the short-term at least.

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