Fed Votes To Buy Up Treasuries, Keep Mortgage Rates Low

The Fed voted Tuesday to reinvest expiring mortgage-backed securities by putting the money into longer-term Treasuries. That, and the decision to keep rates at 0 to 1/4 percent, should keep mortgage rates low. Here’s the full statement following their coffee klatsch:

Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.

Voting against the policy was Thomas M. Hoenig, who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee’s ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve’s holdings of longer-term securities at their current level was required to support a return to the Committee’s policy objectives.

Press Release [Federal Reserve]

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  1. Mike says:

    Remember kids: “Socialism for the rich, capitalism for the poor.”

  2. john says:

    Disappointing. Can’t spend money because of uncertainty and can’t save it because it won’t earn interest. I guess I will have to keep stuffing it in the mattress.

    • Oranges w/ Cheese says:

      I’ve had some good luck investing in some of the mutual funds offered by my bank. One happens to be involved with Minerals and Metals and has a pretty decent return!

      I know it isn’t FDIC insured, and it isn’t a sure thing, but its better then the 1 percent I’d be getting on a 2 year CD.

  3. evnmorlo says:

    Obviously they weren’t satisfied with the damage low-interest rates did to the economy and are going to push forward until there is full-out Armageddon. Clearly the government is run by Mormons whose food stockpiles are about to expire.

  4. peebozi says:

    Further manipulation of the financial markets by our bought and paid for politicians!

    I hope they all die in a radon accident.

  5. peebozi says:

    Hopefully, this policy won’t effect the banks ability to borrow at 0% interest to simply reinvest in 1.5% taxpayer guaranteed bonds.

    Won’t anyone think about the banks and financial sector (oh yea, and the children, whatever)

  6. AllanG54 says:

    This doesn’t seem to really be helping the economy and is doing quite a bit of damage to people who would like to earn a fair rate of interest on savings. With the stock market doing absolutely nothing but see-sawing back and forth and basically remaining at one level it’s all one can do to keep from losing money.