The
Federal Reserve has launched an unorthodox new policy committing to buy $600
billion more in government bonds by the middle of next year in an attempt to
breathe new life into a struggling U.S. economy.
The decision, which takes the Fed
into largely uncharted waters, is aimed at further lowering borrowing costs for
consumers and businesses still suffering in the aftermath of the worst
recession since the Great Depression.
The U.S. central bank said it would
buy about $75 billion in longer-term Treasury bonds per month as part of the
new program. It said it would regularly review the pace and size of its
purchases and adjust as needed depending on the path of the recovery.
Nearly 90 per cent of its purchases
would focus on Treasuries with maturities ranging from 2-1/2 to 10 years, the
New York Federal Reserve Bank said in a statement.
The overall size of the program was
slightly larger than the $500 billion that many analysts had looked for,
however the pace of monthly buying fell short of expectations for something on
the order of $100 billion.
In its post-meeting statement, the
Fed’s policy-setting panel described the economy as “slow,” and said
employers remained reluctant to add to payrolls. It said measures of inflation
were “somewhat low.”
“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 Fed said.
The central bank repeated its vow
to keep overnight rates ultra-low for an extended period. Some analysts had
speculated the Fed might broaden this commitment.
Kansas City Fed President Thomas
Hoenig continued his streak of dissents, saying the risk of additional
securities purchases outweighed the benefits.
A group of bond dealers that
advises the U.S. Treasury expressed concerns about the possibility that a
shortage of bonds could cause market disruptions.
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