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Fed pumps $1.2tn into US economy Fed pumps $1.2tn into US economy
(20 minutes later)
The US Federal Reserve says it will buy $1.2 trillion (£843bn) worth of debt to help boost lending and promote economic recovery. The US Federal Reserve says it will buy almost $1.2 trillion (£843bn) worth of debt to help boost lending and promote economic recovery.
It said it would start buying long-term government debt and expand purchases of mortgage-related and agency debt. It said it would start buying long-term government debt and expand purchases of mortgage-related debt.
The Fed said it would buy up to $300bn worth of US Treasuries, surprising investors who sent US stocks higher. The size of the move surprised investors, causing the Dow Jones stock index to jump almost 200 points.
The Bank of England has already begun buying government debt to expand money supply - known as quantitative easing.The Bank of England has already begun buying government debt to expand money supply - known as quantitative easing.
The Fed also kept interest rates unchanged at close to zero after its two-day policy meeting. The Federal Reserve said it hopes the measures will boost mortgage lending and the struggling housing market by lowering interest rates on mortgages and other forms consumer debt.
The US central bank said it would employ "all available tools" to promote economic recovery. The US central bank also kept interest rates unchanged at close to zero after its two-day policy meeting.
In December, the central bank cut rates as low as they can go - to a range of zero to 0.25%.In December, the central bank cut rates as low as they can go - to a range of zero to 0.25%.
It said it would buy an additional $750bn of mortgage-backed securities to boost mortgage lending, bringing total purchases to $1.25 trillion. All tools
It said it would buy an additional $100bn in bonds issued by government sponsored agencies like Freddie Mac, which supports the mortgage market. The Fed said it would employ "all available tools" to promote economic recovery.
HOW QUANTITATIVE EASING WORKS Central bank expands money supply by using newly created money to buy assets from banks and other financial institutionsAims to boost the economy by giving sellers of these assets money to spend on goods, services or more assets
The biggest surprise was the announcement that the Fed would buy up to $300bn worth of government debt, known as US Treasuries, over the next six months.
It also said it would buy an additional $750bn of mortgage-backed securities to boost mortgage lending, bringing total purchases of this type to $1.25 trillion.
It added that it would buy a further $100bn in debt issued by government sponsored agencies like Freddie Mac, which supports the mortgage market.
"This is a pretty dramatic move," said James Caron, head of global rates research at Morgan Stanley in New York.
Dow Jones industrial average was up 120.98 points, or 1.64%, at 7,516.68 in early afternoon trade in New York.
However, the announcement hurt the dollar, which hit a two-month low against the euro on fears that the measures would undermine the currency.