Fed Will Spend $600B in Second Stimulus

By Jeannine Aversa, AP Economics Writer

WASHINGTON (AP) — The Federal Reserve will sink $600 billion into government bonds in a bold plan that it hopes will drive interest rates even lower than they already are and start the chain reaction that finally creates jobs and invigorates the economy.

The Fed said Wednesday that it would buy the bonds at a rate of about $75 billion a month through the middle of next year. The idea is to encourage people to spend more money and stimulate hiring, both ways of accelerating economic growth.

The announcement helped push stocks, which have been rising for weeks in anticipation of such a move, to their highest close of the year. But the program was immediately met with worries that it would not help enough and could backfire by causing inflation, creating asset bubbles and further weakening the dollar.

Even some analysts who were not concerned about such a backlash said the plan was unlikely to do much good.

"Bottom line: The plan provides a boost to the economy's growth, but it is not going to solve our problems," said Mark Zandi, chief economist at Moody's Analytics. "Even with the Fed's action, we're going to feel uncomfortable about the economy in the next six to 12 months."

The announcement came a day after voters frustrated by persistent unemployment and the limp housing market handed control of the House to Republicans and gave the GOP a bigger voice in the Senate.

The split will probably make it harder for President Barack Obama to enact any major economic initiatives and could put more pressure on the Fed to get the economy back on firmer footing.

The program is smaller than what Fed policymakers called their "shock and awe" approach to fighting the 2008 financial crisis. At that time, the Fed bought $1.7 trillion worth of securities.

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