The Federal Reserve took a dramatic step Wednesday to help revive the economy, resuming its unconventional efforts at stimulating growth nearly a year after embarking on an initiative that ultimately failed to deliver a healthy recovery.
The Fed’s latest move aims to lower interest rates on mortgages and other long-term loans without making another major infusion of money into the economy — and brushes aside a crescendo of criticism from Republicans who have been making the Fed a campaign issue.
The announcement that the Fed would buy $400 billion in long-term Treasury bonds immediately achieved its intended effect, pushing rates on these securities and other investments to their lowest level in decades.
But the stock market rendered a sharply negative verdict. The Standard & Poor’s 500-stock index tumbled almost 3 percent on the Fed’s discouraging statement that its leaders see “significant downside risks” for the economy. Asian markets closed down between 2 and 4.85 percent, and key European indexes were trading more than 4 percent lower at midday.
“They succeeded at getting lower long-term interest rates, but the confidence they wanted to encourage didn’t seem to come through,” said Jim O’Sullivan, chief economist at MF Global. “That has to be disappointing.”