Fed Announces Bombshell New Stimulus Policy

December 12, 2012 8:17 a.m.

The Federal Reserve took a genuinely unexpected step Wednesday afternoon when it announced it would significantly enhance its current monetary easing program. The Fed, for the first time, committed to keeping monetary policy loose until the economy crosses precise thresholds — specifically, an unemployment rate below 6.5 percent or a inflation above 2.5 percent.

It also upped its monthly asset purchases by spending an additional $45 billion a month on Treasuries.Only one member of the Fed Open Market Committee dissented. The significantly more aggressive policy is designed to provide businesses greater incentive to invest, and comes, perhaps not coincidentally, as Congress nears a deadline past which taxes will increase and spending will be cut to the tune of about $50 billion a month.

The Fed’s willingness to pursue a dramatically new policy course comes after the election, before which committee members were much more divided about the direction the Fed should take.

Correction: The initial version of this post incorrectly described the additional asset purchases the Fed is undertaking. The $45 billion a month in new Treasuries purchases is in addition to the $40 billion in mortgage-backed bonds the Fed had already been buying.

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