Are super-low interest rates really the answer to our economic woes, particularly at a time brimming with uncertainty and tighter lending standards?
FORTUNE – Yet again, the Fed-gasm continues.
To give the U.S. economy an extra boost, Fed policymakers on Thursday launched another round of bond purchases — an additional $40 billion worth a month. The move would have been an unusual step for the central bank years ago, but since the financial crisis, bond-shopping sprees have become almost commonplace — a “new normal,” if you will.
After a while, it’s hard not to be skeptical of the Fed’s prescription for our sickly economy. True, after two rounds of large-scale bond purchases, America’s job market has improved some. And this latest round is markedly more aggressive than previous efforts as the Fed has not specified an end date to this program. But are super-low interest rates really the answer, particularly at a time brimming with economic uncertainty and tighter lending standards? Mortgage rates could hit record lows, but getting approved for a home loan in the first place is another issue for many with underwater mortgages or bad credit.
True, stocks have rallied in response to the news that the Fed would act. After trading relatively flat for much of Thursday morning, the Dow Jones Industrial Average jumped immediately following the Fed’s announcement, gaining 90 points, or 0.7%, to 13,423. The Standard & Poor’s 500-stock index rose 11 points, or 0.7%, to 1,447, while the Nasdaq Composite gained 24 points, or 0.8%, to 3,138.
Beyond Wall Street, who else stands to gain from the Fed’s bond-buying extravaganza? The Fed on Thursday also moved to keep short-term interest rates near zero until at least mid-2015 — longer than the late 2014 timeline it had previously announced. All this is intended to make borrowing, particularly home loans, cheap in a draw to spur businesses and consumers to buy and invest more.
Many have questioned the Fed’s timing. As The New York Times reported, it’s not at all unusual for the central bank to stimulate the sluggish economy ahead of a presidential election. Admittedly, the Fed isn’t supposed to be playing politics. But even if it were, it’s safe to say the millions of unemployed would gladly overlook that if it meant an increased chance of landing a decent job in the near future.