Targetting for a lower long run interest rate in USA

US Federal Reserve is buying $400 billion long term treasury bond to reduce long term interest rate further. As a result, long term treasury yield or interest rate recorded at less than 3 percent recently. Normally all the lending institutes follow long term treasury yiled as their benchmark to fix their lending rates. As a result, long term investment especially housing industry is likley to get escalated. But I have every doubt whether it will happen as investors or house buyers do not only look at the interest rate figure but also overall economic situation. American people now a days prefer not to spend rather save to avoid future uncertainty, which is likely to get worse in the near future.

This time Federal Reserve is not printing new money. What they are doing now, they are selling short term bond of $400 billion. With this proceeds, they are buying equivalent amount of long term bond. It is merely reshuffling of Federal Reserve balance sheet.

But the short run interest rate may slightly go up due to selling short run bond although Federal Reserve has pledged to keep it at almost zero percent.

Whether quantitative easing is working?

So far I see quantitative easing, a special type of monetary policy adopted by Federal Reserve System is not working as it had been expected. Unemployment rate stood at 9.1 percent in May while inflation is raised to 3.16 percent in April. So people do not have job, at the same time inflation has been escalated.

Under quantitative easing program, Federal Reserve has injected $2.5 trillion in the economy over the period 2008-2011 to boost economy specially to ease unemployment problem.

Due to inclusion of paper money, inflation has been rocketed.