The Federal Reserve will buy an additional $600 billion of longer-term Treasury securities by June 30, 2011, at a pace of about $75 billion a month, the Fed announced Wednesday.
Also, Fed policymakers left the target range for the federal funds rate at zero to 0.25%, according to a news release.
“The committee … continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends and stable inflation expectations are likely to warrant exceptionally low levels for the federal funds rate for an extended period,” said a statement by the Federal Open Market Committee, which sets the rate.
The Federal Reserve Bank of New York in a separate news release said the bank’s open market trading desk would continue to reinvest into longer-term Treasuries up to $300 billion expected from agency debt and agency mortgage-backed securities through June.
Together with the $600 billion announced Wednesday, the New York Fed’s trading desk expects making $850 billion to $900 billion in longer-term Treasury security purchases through the end of the second quarter 2011, the New York Fed’s news release said.
“To provide operational flexibility and to ensure that it is able to purchase the most attractive securities on a relative-value basis, the desk is temporarily relaxing the 35% per-issue limit on (system open market account) holdings under which it has been operating,” the release said, but any amount above 35% would be moderate.
Ray Humphrey, senior vice president and portfolio manager at Hartford Investment Management, said the market would have preferred that Fed policymakers state an explicit inflation objective and their intent to purchase securities until they reached that objective. Instead, policymakers said they would review the new purchase program in June.
“The market is mildly disappointed,” Mr. Humphrey said. “The disappointment comes from the lack of clarity in the terminal point of the program.”
“You’re getting a monetization of the debt here,” added Matthew Smith, president and chief investment officer of fixed-income manager Smith Affiliated Capital.
“If you continue down this QE2 posture, it’s not helpful to growth going forward,” Mr. Smith added, referring to the second round of quantitative easing.