It took longer than it should have to get to this point, but it looks like the Federal Reserve is finally stepping up with a meaningful economic intervention plan.
The Federal Reserve opened a new chapter Thursday in its efforts to accelerate the economic recovery, saying that it would expand its holdings of mortgage-backed securities, and potentially undertake other new policies, until unemployment drops sufficiently or inflation rises too fast.
The Fed said that it will add $23 billion of mortgage bonds to its portfolio by the end of September and then announce its plans for October as part of a new process that aims to prioritize the Fed's economic objectives.
The Fed also said, in a statement following a meeting of its policy-making committee, that it now expects to hold short-term interest rates near zero until at least mid-2015, extending the forecast it made in January by about half a year.
Remember, under normal circumstances, the Fed can lower interest rates to boost economic activity, but that hasn't been a credible option for a long while -- interest rates have already bottomed out -- making quantitative easing the main vehicle.
As Brad Plumer explained, "Since the Federal Reserve can essentially create dollars out of thin air, it can buy up assets like long-term Treasuries or mortgage-backed securities from commercial banks and other institutions. This pumps money into the economy and reduces long-term interest rates even further. And when long-term interest rates go down, investors have more incentive to spend their money now."
This round of buying isn't as significant as QE1 and QE2, but the Fed is making an "open-ended" commitment, suggesting efforts will simply continue until the economy is in a healthier position.
Matt Yglesias, who's reported on this extensively for months, called today's move "a huge positive step."
Republicans, who apparently now admit they're concerned about President Obama benefiting politically from a growing economy, will not be pleased.