Mar 18 2009
Federal Reserve To Purchase $300 Billion in Long Term Treasury Bonds
The Federal Reserve just announced that it will spend up to $300 Billion to purchase long-tern government bonds over the next six months. This drastic step is an attempt to lift the country out of recession by reducing rates on mortgages and consumer debt.
The Fed has left the bank lending rate between zero on 0.25 percent, the lowest in history. It is expected that the rate will be left in this range through the end of 2010.
The Fed’s purchase of the long-term bonds should boost their prices and reduce their interest rates. That interest rate reduction should lead to lower rates on other kinds of debts. The Fed normally does not try to influence long term rates. The last time it did was in the 1960’s when the Kennedy administration enacted Operation Twist.
the Federal Reserves action mimics the Bank of Englands actions from last week. The Bank of England has begun buying government bonds from financial institution and lowered its key lending rates to a record low 0.5 percent. The Bank’s actions were designed to help Britain’s economy rebound.
Fianancial leaders from countries around the world have been discussing coordinated actions from their governments in an effort to help the global economy.
