Ex­perts: Fed may take more ac­tion

Fed

Austin American-Statesman - - BUSINESS - Con­tin­ued from B

Fed’s in­vest­ment port­fo­lio; it just reshuf­fled the hold­ings. But the Fed has run out of short-term se­cu­ri­ties to sell. So to main­tain its pace of longterm Trea­sury pur­chases and keep long-term rates low, it must spend more and in­crease its port­fo­lio.

The new bond pur­chase plan would join a pro­gram an­nounced in Septem­ber. Un­der that pro­gram, the Fed is buy­ing $40 bil­lion a month in mort­gage bonds to try to force al­ready record-low home-loan rates lower to en­cour­age home buy­ing. The to­tal Fed bond pur­chases from the two pro­grams would re­main $85 bil­lion.

“The Fed really has only one key de­ci­sion at the meet­ing, and that is how much of the cur­rent pro­gram will they re­place,” said David Jones, chief econ­o­mist at DMJ Ad­vi­sors.

If, on the other hand, the Fed chooses not to re­place Twist with a new bond-buy­ing pro­gram, the value of its long-term Trea­sury pur­chases will de­cline by half. Long-term bor­row­ing rates might rise as a re­sult.

When the Fed pumps more money into the fi­nan­cial sys­tem and adds to its port­fo­lio, it’s called quan­ti­ta­tive eas­ing, or QE. Crit­ics ar­gue that QE risks es­ca­lat­ing in­fla­tion later. The Fed’s port­fo­lio to­tals nearly $2.9 tril­lion — more than three times its size be­fore the 2008 fi­nan­cial cri­sis.

The Fed has launched three rounds of QE since the fi­nan­cial cri­sis hit. In an­nounc­ing QE3 in Septem­ber, the Fed said it would buy mort­gage bonds un­til the job

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.