As widely expected by the market, the Federal Reserve announced at the conclusion of their FOMC meeting that they will purchase longer-term treasury securities to replace "Operation Twist". Initially the purchases will be about $45 billion per month.
Operation Twist—which involves buying longer-term bonds and selling a like amount of shorter-term treasuries—is expiring at the end of this month.
Additionally, Fed buys 40 billion of agency mortgage-backed securities each month, under QE3. In all, Fed will continue to buy about $85 billion of longer-term bonds each month under the two programs.
Per their statement “these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative”.
Another important announcement in the release was the adoption of “economic targets” for unemployment and inflation. They decided to keep the target range for the fed funds rate between 0% and 0.25%-- as long as the unemployment rate remains above 6.5% and medium-term inflation does not exceed 2.5%
The action was supported by 11 members of FOMC, with dissent from Richmond Fed President Lacker.
Later today, Fed chairman Bernanke will hold a press conference and the central bank will also release its latest economic forecast.
In a recent WSJ survey, some economists said that the Fed should stop buying bonds as their acquisition is disrupting market dynamics. Do you agree?
Further, interest rates are already near all-time lows but the credit standards are still tight. So, do the consumers benefit from Fed moves?
And the businesses have put their spending and hiring plans on hold in view of the fiscal cliff uncertainty.
Do you think that the Fed move is positive for the markets?