Federal Reserve Acts to Boost U.S. Economy
By Merle David Kellerhals Jr.
Staff Writer
Washington - The U.S. Federal Reserve will buy up about $400 billion of longer-term Treasury securities by the end of June 2012 as part of an effort to boost the sagging U.S. economy and help the housing market.
The Fed will sell short-term Treasury securities of three years or less and buy an equal amount of Treasury securities that mature in a range from six years to 30 years. It is a rebalancing of the Fed's $2.87 trillion portfolio of securities aimed at helping to lower mortgage interest rates and rates on consumer and business loans. The move is also intended to get investors to move into corporate bonds and stocks while not increasing consumer prices.
"Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated," the Fed said in a statement released September 21. "Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles."
"Investment in nonresidential structures is still weak, and the housing sector remains depressed," the Fed added.
The Federal Open Market Committee, the policymaking arm of the Federal Reserve System, said the action it agreed to take should put "downward pressure on longer-term interest rates" and help to improve broader financial conditions.
The Fed also said it will reinvest payments from its holdings of mortgage agency debt and agency-backed securities to help further boost the housing market. The Fed said it would keep its target range for the federal funds rate charged to banks for overnight loans at 0 to 0.25 percent.
Four Republican leaders in the U.S. Congress raised concerns in a letter to the Federal Reserve that further action could worsen economic conditions. They argued that previous efforts by the Federal Reserve have not improved the employment rate in the United States, and they expressed concern that further actions could increase inflation.
The Fed said in its statement that "longer-term inflation expectations have remained stable. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks."
The unemployment rate in the United States stood at 9.1 percent in August, and the nation's gross domestic product rose by a modest 0.7 percent in the first half of 2011.
The Federal Open Market Committee said that it continues to expect some pickup in the pace of the current recovery over the coming quarters, but that the unemployment rate will decline only gradually.
(This is a product of the Bureau of International Information Programs, U.S. Department of State.)
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