Federal Reserve policy makers will replace some bonds in their portfolio with longer-term Treasuries in an effort to further reduce borrowing costs and keep the economy from relapsing into a recession.Read More
The central bank will buy $400 billion of bonds with maturities of six to 30 years through June while selling an equal amount of debt maturing in three years or less, the Federal Open Market Committee said today in Washington after a two-day meeting. The action is intended to ?put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,? the FOMC said in a statement. The Fed will also reinvest maturing mortgage debt into mortgage-backed securities instead of Treasuries. Three officials dissented, the same as at the prior meeting in August.
Chairman Ben S. Bernanke expanded use of unconventional monetary tools for a second straight meeting after job gains stalled and the government lowered its estimate of second- quarter growth. Today?s action, dubbed ?Operation Twist? by economists after a similar Fed action in 1961, may lower interest rates and avoids reprising the money creation that sparked Republican criticism last year.
?There are significant downside risks to the economic outlook, including strains in global financial markets,? the Fed statement said. Stocks and 10-year Treasury yields declined after the statement.
The Fed left unchanged its pledge to keep the benchmark interest rate near zero through at least mid-2013 as long as unemployment remains high and the inflation outlook stays ?subdued.? The central bank has kept the target federal funds rate for overnight interbank loans in a range of zero to 0.25 percent since December 2008.
The Fed said it will release a schedule of purchases and sales of bonds for October on Sept. 30.
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