In an effort to shore up the U.S. economy, the Federal Reserve
has launched a new round of quantitative easing
, or QE2
, that will buy $600 billion of longer-term treasury securities by the middle of next year, the Financial Times reports
) is a monetary policy
used by some central banks
to increase the supply of money
by increasing the excess reserves of the banking system, generally through buying of the central government’s own bonds to stabilize or raise their prices and thereby lower long-term interest rates, according to the Wikipedia.com
entry on quantitative easing. The policy is usually invoked when the normal methods to control the money supply have failed, i.e the bank interest rate
, discount rate
and/or interbank interest rate
are either at, or close to, zero
, according to the Wikipedia
entry. It has considered the electronic equivalent of printing legal tender.
According to the Financial Times report, many economists question how much the Fed is able boost the economy, particularly when households are saving to compensate for the drop in home values. Some economists also fear how QE2 may effect the rest of the world if it causes the dollar to drop further, according to the report.