Why would the Fed want to push down long term interest rates?

In reading/listening to the news you must have heard of the word QE 2. Like some folks note QE 2 Show more In reading/listening to the news you must have heard of the word QE 2. Like some folks note QE 2 sounds like a luxury ocean liner. Aah! I wish it is but to the contrary QE 2 is more like the Titanic. Here are the facts: In November 2010 Mr. Bernanke announced that the Fed would implement a second round of quantitative easing also known as QE 2 among the financial folks. In QE 2 the Fed would purchase $600 billion in long term US Treasury Bonds ostensibly to push down long term interest rates. Of course the Fed will not buy the $800 billion worth of US bonds in one purchase but it plans to stretch it over many months. Then in July 2012 there are reports that the Fed is contemplating a QE 3 because the economies of European countries are slowing down fast. China admits that its economy is slowing down too because of the situation in Europe. So the Fed strongly hints that the Fed might act soon regarding a QE 3. On September 13 2012 the Fed acted on QE 3. But then in July 2013 the Fed showed signs that it may slow down its purchase of US securities since the economy shows sign of continuing growth. Stock prices decrease upon hearing that the Fed may reduce its economic stimulus. a) In QE 2 the Fed is the buyer but who is the seller? b) Why would the Fed want to push down long term interest rates? c) Foreign currency traders are carefully watching the magnitude of the potential QE 3 i.e. how much billions of dollars would the Fed spend to purchase US Treasury Bonds. Why do these traders worry so much about QE 3? c) What would be the ultimate consequence of QE 2 and QE 3? d) Why would the stock market decrease when the Fed wants to decrease its purchase of US securities? e) On February 1 2014 Ms. Yellen became the new Fed Chairman. At her February 11 2014 testimony before Congress Ms. Yellen pledged that she will continue to maintain Mr. Bernanke policies by scaling back stimulus by measured steps and only a notable change in the economic outlook will prompt her to slow the pace of tapering. Could you explain what Ms. Yellen is saying? Show less

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