Fed Plans $600B Bond-Buying Binge

Posted by Orb Staff on November 04, 2010 No Comments
Categories : Residential Mortgage

The Federal Open Markets Committee (FOMC) announced a second round of quantitative easing Wednesday, deciding that the central bank will buy another $600 billion of Treasury securities. The purchases, which will come at a pace of about $75 billion per month, will wrap up at the end of the second quarter of 2011.

The Federal Reserve will also reinvest principal payments from mortgage-backed securities into longer-term Treasury securities. The New York Fed's Open Market Trading Desk, which the FOMC tapped to purchase the extra securities, expects to reinvest between $250 billion and $300 billion by the end of the second quarter.Â

The Fed hopes that its return to a strategy of quantitative easing will help strengthen the pace of economic recovery.

‘Although the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow,’ the FOMC said in a statement Wednesday.

The lone FOMC member to vote gainst the policy was Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City. According to the committee's statement, Hoenig believes the additional securities purchases could lead to an increase in long-term inflation expectations.

The FOMC also has maintained the target range for the federal funds rate as between 0% and 0.25%.

SOURCES: FOMC, New York Fed

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