Fed Shifts to Bond-Buying Mode to Boost Economy

Posted on Aug 10, 2010

Flickr / jmlawlor

George Washington strikes a pose in statue form outside the Federal Reserve building in Washington.

The Federal Reserve is taking action to try to give the flagging U.S. economy a much-needed jolt by committing to buy up some of the government’s debt in the form of long-term Treasury securities.

The Fed’s announcement came in tandem with the gloomy news on Tuesday that America’s economic recovery is likely to be “more modest in the near term than had been anticipated.” Nice with the “more modest,” there, but to translate this message from governmentese, we can deduce that the situation is going to stink for a good while to come.  —KA

BBC:

In a statement, the Fed said the pace of recovery had slowed in recent months and is likely to be “more modest in the near term than had been anticipated”.

“Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit,” the central bank said.

Some analysts say the move could mean that money can be borrowed cheaply for a longer period of time.

“The Fed’s investments in longer-dated Treasury debt should ... lower mortgage and other borrowing rates,” Stephen Gallagher and Aneta Markowska from Societe Generale commented.

Others believe the Fed will have to take further steps in the coming months.

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