WASHINGTON — Acknowledging that the recovery has slowed, the Federal Reserve on Tuesday announced that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities.Read the rest here.
By buying government debt, the Fed is taking an unmistakable step to maintain the large amount of money that it pumped into the economy, starting in 2007, to prop up the financial and housing markets.
The Fed bought $1.25 trillion in mortgage-backed securities, and another $200 billion in debts owed by government-sponsored enterprises, primarily Fannie Mae and Freddie Mac, and completed the purchases in March. The Fed had planned to allow the size of that portfolio to shrink gradually over time as the debts matured or were prepaid. Instead, the Fed will reinvest the principal payments in longer-term Treasury securities.
The central bank said it would continue to roll over its holdings of other Treasury securities as they mature.
In its announcement, the Fed also left unchanged its benchmark short-term interest rate — the federal funds rate, the rate at which banks borrow from each other overnight — at zero to 0.25 percent, the level it has been at since December 2008.
In a new qualification to its previous statements, the committee said it still expected a “gradual return” to normal economic conditions, “although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”
On Wall Street, shares regained some lost ground after the announcement.
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Thank God. If current fringe madness around monetary policy gains ground outside of tea partiers, we are in real trouble.
ReplyDeleteThe Fed bought $1.25 trillion in mortgage-backed securities, and another $200 billion in debts owed by government-sponsored enterprises, primarily Fannie Mae and Freddie Mac, and completed the purchases in March. The Fed had planned to allow the size of that portfolio to shrink gradually over time as the debts matured or were prepaid. Instead, the Fed will reinvest the principal payments in longer-term Treasury securities.
ReplyDeleteThen something else is going on here. I thought these were TARP assets: toilet paper that the Fed let the banks unload on it in exchange for the Fed's portfolio of government securities and outright loans to member banks.
I thought there were no payments because these bundled securities are full of defaulted mortgages and the underwriters are all broke. If the Fed is getting payments on these securities then they are marketable, and if they are marketable then they did not have to be parked at the Fed to begin with. And in any event why are they loaning money to the government instead of balancing the books with the cash?
This type of opaque reporting irritates me.