Fed to Buy Billions More in Government Bonds

The Federal Reserve announced a bold plan Wednesday to try to invigorate the economy by buying $600 billion more in Treasury bonds.

The Fed said it would buy the long-term government bonds by the middle of 2011 to further drive down interest rates on mortgages and other debt. This is in addition to an expected $250 billion to $300 billion in Fed purchases over the same period from reinvesting proceeds from its mortgage portfolio.

The idea is for cheaper loans to get people to spend more and stimulate hiring. The Fed said it will monitor whether adjustments are needed depending on how the economy is performing.

Some worry the Fed action will do little to boost the economy because interest rates are already historically low. Others fear the bond purchases could drive inflation too high over the long term and unleash speculative buying in assets like stocks.

In announcing the action, the Fed said the pace of the economy continues to be slow. Companies remain reluctant to hire, housing activity is depressed and consumers are increasing their spending only gradually.

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, dissented for the sixth straight meeting. He says the risks of the Fed's extra stimulus outweigh the potential benefits.

With the economy weak, the Fed doesn't want to take chances that it could get stuck in the kind of economic stagnation and deflation problems that gripped Japan and led to a "lost decade" during the 1990s.

Deflation is a widespread and prolonged drop in prices of goods and services, in wages and in the values of homes and stocks. Deflation makes it harder for people and companies to pay their debts, pushing up home evictions and bankruptcies.

Fed policymakers expressed disappointment that they haven't been able to reduce unemployment - now at 9.6 - and raise inflation to levels more in line with a healthy economy. Progress toward those goals has been disappointingly slow, the Fed acknowledged in its post-meeting statement.

The Fed has tried since the 2008 financial crisis to keep credit available to individuals and businesses. It's done so, in part, by keeping the target range for its bank lending rate near zero.

It also pursued the unorthodox strategy of buying long-term bonds. The Fed's purchases are so vast that they push down the rates on those bonds.

In 2009, the Fed bought $1.7 trillion in mortgage and Treasury bonds. Those purchases helped lower long-term rates on home and corporate loans. The program was credited with helping to lift the country out of recession.

The action comes one day after voters frustrated by unemployment, scant pay gains and soaring home foreclosures punished Democrats and handed control of the House to Republicans. Democrats kept control of the Senate.

The split will make it harder for President Barack Obama to enact any major economic initiatives. That could put more pressure on the Fed to get the economy back on firmer footing.

Once again, the Fed pledged to hold its key interest rate at a record low near zero for "an extended period."

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MSmailbox

President Obama's greatest legacy, will be that he restored our faith in God (as opposed to government). I'm not sure that's what he had in mind, but I thank him, anyway.

November 04 2010 at 7:54 AM Report abuse +1 rate up rate down Reply
k4jlp

RIGHT, CONTINUE WHAT DOES NOT WORK..THE FED RESERVE IS THE PROBLEM NOT THE ANSWER, THE ONLY THING THIS WILL DO IS JACK THE PRICES OF COMMODITIES, LOWER THE VALUE OF THE DOLLAR...WHAT WAS THE WRONG THING TO DO IN 1913 STILL IS THE WRONG THING TO DO IN 2010..

November 04 2010 at 7:33 AM Report abuse +1 rate up rate down Reply
MSmailbox

Can the government print enough money, so that everyone will be debt-free?

November 04 2010 at 7:25 AM Report abuse +1 rate up rate down Reply
MSmailbox

Can the government print enough money, so that everyone will be debt-free?

November 04 2010 at 7:25 AM Report abuse rate up rate down Reply
MSmailbox

If the Fed can print enough money, so that each of us would have $1,000,000.00, then no one would have to work, anymore. Imagine that, 280,000,000 millionaires, all relaxing on the beach! Heck, why not give $1 Billion USD's to each and every American! The other option would be to call in all the USD's, in a reverse-split... Turn in $100, but get $10 that's got some buying power!

November 04 2010 at 7:20 AM Report abuse +2 rate up rate down Reply
aftonmoon

Typical of government--when something is not working, do more of it. The only thing that is happening here is that he Fed is printing more money which in the end will result in marked inflation. In the near term low interest rates will just birng in the speculators, while average people, especially those without a job, cannot afford to borrow money even at one percent interest. But, it will be interesting to see how the Republicans, who can not longer sit back and just say no, will deal with the problem. In fact the best thing that happened to Obama is the Republican victories as they will no longer have the president to blame when more of the Republican policies that got us into this mess make it even worse.Of course the very welathy will continue to do well while the middle class, after having been duped, continues to go down the tube. I can hear the fat cats on Wal Street, along with talk radio fat cats like Lombaugh, Beck, and O'Reilly laughing all the way to the bank as they pass their audence on the way to the unemployment line. Those who are not among the extremely wealthy and who voted Repubklican are the biggest fools of all. See full article from DailyFinance: http://srph.it/ahcyL1

November 04 2010 at 6:34 AM Report abuse -2 rate up rate down Reply
cmhstnick

History as we all know tends to repeat its self !! , If this is true....... we will have a revolution in the near future !!! I pray that we don't... But there are a lot of very angry people !! and you can't blame them !! We have all been screwed by government , by people who should have never been allowed to be in a position of power.

November 04 2010 at 6:34 AM Report abuse +3 rate up rate down Reply
1 reply to cmhstnick's comment
MSmailbox

Leave the President out of this!

November 04 2010 at 7:22 AM Report abuse -1 rate up rate down Reply
steve

What I find depressing and yet humorous at the same time is the notion that an election can change anything. The ecomnomy is a problem that is an issue for EVERYONE to do something about not just Washington. People not spending more than they make, taking jobs that may not be wonderful but at least pay the bills, and companies highering Americans and not outsourcing to save a buck could do wonders on its own. What would also be nice is for the news agencies to take a break from telling us all how horrible life is and how much worse it's going to get. Now wold be a good time for the US to start looking around with the lights on, and not feel compelled to wallow in the dark.

November 04 2010 at 5:32 AM Report abuse -1 rate up rate down Reply
1 reply to steve's comment
SoquiliAsgaya

Wallow in the dark, yep that what the GOPiggyletts are doing and with this new election, they want things to fail and get worse by next general election time.

November 04 2010 at 6:08 AM Report abuse -1 rate up rate down Reply
amani4000

Get ready for $5.00 a gallon gas, $30.00 a bag for groceries, and a damn cold house if you live up north. Ben has got to go, none of his policies have worked, Period. He has given the Big Banks a free ride on the backs of all hard working Americans. They pay no intrest on loans, how much do you pay? It is going to be an ugly winter folks1

November 04 2010 at 5:26 AM Report abuse +1 rate up rate down Reply
1 reply to amani4000's comment
dterraman

the fed is the problem

November 04 2010 at 5:53 AM Report abuse +1 rate up rate down Reply
arkady967

This is really bad...there's no demand, because there're are no jobs. Spending money we don't have to float ersatz jobs that will only last as long as the stimulus money holds out finally leaving the country, and the people encouraged to buy things on credit during the illusion of returning prosperity, further in debt than at present. Insanity!

November 04 2010 at 4:54 AM Report abuse +3 rate up rate down Reply