Federal Reserve policymakers today announced that they would buy up to $300 billion of longer-term Treasury securities over the next six months, purchase up to an additional $750 billion of agency mortgage-backed securities and increase purchases of agency debt this year.
The announcement came as the Federal Open Market Committee decided to keep the target range for the federal funds rate at 0% to 0.25%.
The economy continues to contract, said a statement from the committee. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. Although the near-term economic outlook is weak, the committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.
They have run out of the jawboning they can do, said Robert G. Smith, chairman and CEO at fixed-income manager Smith Affiliated Capital. So theyre stepping up with a time frame and dollar amount to implement quantitative easing with regard to Treasuries. This is a development they have to do because if Treasuries were to continue to rise, all their (Feds) prior interventions in the credit sectors would have become losses.
Mr. Smith also said he believed Fed Chairman Ben Bernanke has been overly optimistic in his market forecasts.
Things will get weaker than the Fed has suggested, Mr. Smith said.