-
Source: Reuters -
Related
In a surprise move, the US Federal Reserve said it will buy up to $US300 billion worth of longer-term US government debt over the next six months and expand purchases of mortgage-related debt to help ease credit market conditions.
In a statement at the end of a two-day meeting, the central bank's policy panel also said it had decided to hold its target for overnight interest rates in a 0% to 0.25% range - the level reached in December.
It said rates would stay low for "an extended period," a more explicit vow to stay on hold for a prolonged time.
"In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability," the Fed said.
With benchmark rates virtually at zero, the Fed has turned its focus to pumping money into stressed credit markets in the hope of restarting lending and restoring growth - a policy Fed chief Ben Bernanke has dubbed "credit easing."
Prices for US government bonds shot higher and US stocks jumped on the move, with the blue chip Dow Jones industrial average moving into positive territory. The dollar fell sharply.
"This is a pretty dramatic move ... They are trying to bring down all consumer rates," said James Caron, head of global rates research at Morgan Stanley in New York.
In addition to the purchases of US Treasury debt, the Fed said it would expand an already existing programme to buy debt and securities issued by the government-backed mortgage finance agencies. It said it would expand those purchases by a combined $US850 billion to a total of $US1.45 trillion this year.
The programme has already been effective in lowering US mortgage rates.
"Bottom line is the Fed is adding a trillion dollars to their balance sheet and that's a lot of taxpayer money," said Greg Salvaggio, vice president for trading at Tempus Consulting in Washington.
With benchmark rates virtually at zero, the Fed has turned its focus to pumping money into stressed credit markets in the hope of restarting lending and restoring growth - a policy Fed chief Ben Bernanke has dubbed "credit easing."
Bernanke on Sunday said repairing the tattered financial system was necessary to secure a recovery for the US economy, which has been stuck in recession for more than a year.
The Fed this week began taking bids for a programme designed to spur student, auto, credit card and small business lending, and it said on Wednesday it would consider expanding that programme to cover a wider array of assets.
The consumer and small business credit programme will initially
aim to inject $US200 billion into the market for securities backed
by these loans, but the Fed has already said that programme could
be ramped up to $US1 trillion.
While the Fed has gone to extraordinary lengths to try to get
credit flowing, the economy is still in a nose dive.
US gross domestic product shrank at a 6.2% annual rate in the fourth quarter, the deepest contraction since early 1982, and the unemployment rate has shot to a 25-year high of 8.1%.
However, there have been some signs recently that suggest consumer spending may be stabilizing and hints the battered housing sector is beginning to heal.
After a $US700 billion bank bailout approved by Congress in October and a $US787 billion tax-cut and spending bill passed this year to lift the economy, public resentment at the large tab taxpayers are picking up has grown more strident.
Fury over $US165 million in bonuses paid to executives of insurer American International Group , which has received up to $US180 billion in government aid, has eroded support for extensive government efforts to heal the financial sector.
