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From Bloomberg: http://www.bloomberg.com/apps/news?p...d=aek1s.x4XxLs
If they start doing this, what would it do to the bond market? If the goal is lower interest rates, how could it even work without the Fed basically taking over the entire bond market? Or is this more likely a "credible threat," of the type Bernanke has talked about before?
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Fed Keeps Rate Near Zero, Is Ready to Buy Treasuries
Jan. 28 (Bloomberg) -- The Federal Reserve left the benchmark interest rate as low as zero, said it’s prepared to purchase Treasury securities to resuscitate lending and warned inflation may recede too quickly.
The Fed is ready to buy “longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets,” the Federal Open Market Committee said in a statement today in Washington. Any purchases before the FOMC’s next meeting in March would still need a vote to authorize the action
Chairman Ben S. Bernanke, by making emergency credit programs rather than rates the focus of policy, is quelling some of the panic in markets while failing to revive growth. Falling home prices, rising unemployment and more than $1 trillion in losses and writedowns at global financial institutions are deepening the longest recession since the 1980s.
“The focus of the committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve’s balance sheet at a high level,” the Fed said in the statement.
Treasury notes declined after the Fed stopped short of announcing it would begin the purchases. The yield on the benchmark 10-year note climbed about 13 basis points to 2.65 percent at 4:30 p.m. in New York. Stocks rose, with the Standard & Poor’s 500 Index increasing 3.4 percent to 874.09 in New York.
Too Little Inflation
The Fed said there is a risk that inflation could fall too low. “The committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term,” the statement said.
The Fed’s preferred inflation gauge, the personal consumption expenditures price index, excluding food and energy, may rise just 0.78 percent this year, according to Macroeconomic Advisers LLC in St. Louis. That’s about 1 point below the preference range that policy makers signaled in their third-year forecasts in January 2008.
“Deflation is an increased worry,” said William Ford, a former Atlanta Fed chief who’s now at Middle Tennessee State University in Murfreesboro. “They have switched from worrying about inflation to being focused on deflation. It is the first time they have talked about that in a straightforward way.”
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If they start doing this, what would it do to the bond market? If the goal is lower interest rates, how could it even work without the Fed basically taking over the entire bond market? Or is this more likely a "credible threat," of the type Bernanke has talked about before?
---------------
Fed Keeps Rate Near Zero, Is Ready to Buy Treasuries
Jan. 28 (Bloomberg) -- The Federal Reserve left the benchmark interest rate as low as zero, said it’s prepared to purchase Treasury securities to resuscitate lending and warned inflation may recede too quickly.
The Fed is ready to buy “longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets,” the Federal Open Market Committee said in a statement today in Washington. Any purchases before the FOMC’s next meeting in March would still need a vote to authorize the action
Chairman Ben S. Bernanke, by making emergency credit programs rather than rates the focus of policy, is quelling some of the panic in markets while failing to revive growth. Falling home prices, rising unemployment and more than $1 trillion in losses and writedowns at global financial institutions are deepening the longest recession since the 1980s.
“The focus of the committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve’s balance sheet at a high level,” the Fed said in the statement.
Treasury notes declined after the Fed stopped short of announcing it would begin the purchases. The yield on the benchmark 10-year note climbed about 13 basis points to 2.65 percent at 4:30 p.m. in New York. Stocks rose, with the Standard & Poor’s 500 Index increasing 3.4 percent to 874.09 in New York.
Too Little Inflation
The Fed said there is a risk that inflation could fall too low. “The committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term,” the statement said.
The Fed’s preferred inflation gauge, the personal consumption expenditures price index, excluding food and energy, may rise just 0.78 percent this year, according to Macroeconomic Advisers LLC in St. Louis. That’s about 1 point below the preference range that policy makers signaled in their third-year forecasts in January 2008.
“Deflation is an increased worry,” said William Ford, a former Atlanta Fed chief who’s now at Middle Tennessee State University in Murfreesboro. “They have switched from worrying about inflation to being focused on deflation. It is the first time they have talked about that in a straightforward way.”
... continues ...
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