Fed's New Stimulus Plan Sends Stocks Plunging

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All eyes were on Wall Street Thursday after the Federal Reserve's announcement of its latest plan to boost the U.S. economy sent stocks plunging on Wednesday.

The Dow Jones industrial average fell 283 points Wednesday after the Fed said it would buy long-term bonds.

The rebalancing of the Federal Reserve's $2.65 trillion portfolio is designed to lower long-term interest rates like those on mortgages and other consumer loans.

Investors expected the announcement but most doubt it will have much of a long-term impact.

"It has been tried once before and it didn't work," economist Robert Brusca noted. "They may be able to have some modest success with it, but the problem is this: interest rates are already low. That's not the problem. Treasury interest rates are extremely low."

"The problem is that you need a credit score that is very high in order to qualify for the lowest mortgages," he explained.

"So lowering 10-year note rates with the idea of lowering mortgage rates is something that doesn't help very much," he said.
Some analysts say the shift in the Fed's portfolio could provide modest help to the economy.

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