The Federal Reserve laid out a big plan Wednesday meant to revive the economy by buying $600 billion in US Treasury bonds.
The plan is to buy $75 billion in bonds each month through the middle part of 2011 to help reduce interest rates on home mortgages and other kinds of debt. This adds to between $250 billion and $300 billion the Fed is expected to purchase over same time span by reinvesting some of its mortgage portfolio.
The goal is to create more interest in spending and hiring by making cheaper loan available. The Fed plans to monitor the plan and make changes based on how the economy is performing.
There is some fear on Wall Street that the new effort will have little or no impact on the economy, since interest rates are already so low. Others said the bond sales could increase inflation and lead to more speculative stock buying from investors.
The Fed said in a statement that the economy continues to be slow to grow. Companies are not picking up hiring, consumer spending is up only slightly and housing sales remain down.
The Fed is worried that the weak economy could send the country into a period of deflation like what Japan experience in the 1990s.
Deflation is a large and lingering drop in prices, wages and the values of stocks and homes. Deflation makes it more difficult for people and businesses to pay down debts and leads to increased bankruptcies and home evictions.