Finally, QE3 has been announced by the US Federal. Fed will be buying mortgage backed securities to expand its balance sheet. The Fed said that it would buy $40bn worth of assets every month and continue to do so and undertake additional purchases or other policy tools until the labor market scenario shows marked improvement.
The FOMC also said that it will keep the interest rates at record-low levels until ‘mid 2015 at least’. The surprising factor was the open-ended nature of the purchases. The Fed has not set a limit on the amount of assets it shall buy but has tied the purchase program to the unemployment levels.
The dollar index has slid from 79.73 levels to 79.09 levels after the QE3 announcement. This suggests a substantial softening of the USD against its major trading partners’ currencies. Euro has broken through the 1.3 levels Emerging markets look to gain the most from these developments as 3 of the biggest economies viz. US, Europe and China are on the road to easing monetary policies to bolster growth. The optimism is that a part of these excess funds generated will flow to the emerging markets, thereby contributing to their own growth as well.
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