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Fed decides to pump additional $1 trillion

19 March 2009 09:03 (UTC +04:00)

Baku. Vahab Rzayev â€“ APA-Economics. The Federal Reserve on Wednesday vowed to pump an additional $1 trillion into the U.S. economy in an aggressive bid to battle a deep recession, partly by buying government bonds for the first time since the 1960s.
Concluding a two-day policy meeting, the central bank said it would buy up to $300 billion in longer-term Treasuries to bring down borrowing costs, harkening back to a program called "Operation Twist" that ran from 1961 to 1965.
The decision caught many off guard and jolted markets.
While the Fed had said it was considering such a move, it had downplayed it in recent weeks. As recently as March 6, New York Federal Reserve Bank President William Dudley had said buying longer-term government debt was not the most efficient way to ease credit market strains.
In addition to purchasing Treasury debt, the Fed said it would expand an existing program to buy debt and securities issued by mortgage finance agencies by $850 billion to $1.45 trillion, an effort to lower mortgage rates.
Fed said it would begin buying the Treasury debt late next week and planned to focus on securities with maturities ranging from two years to ten years. It said it would make purchases about two to three times a week.
In addition to ramping up its efforts to pump money into the recession-struck economy, the Fed unanimously decided to hold its target for overnight interest rates in a zero to 0.25 percent range -- the level reached in December. One Fed official, Richmond Federal Reserve Bank President Jeffrey Lacker, returned to the fold after dissenting in January.
The Fed said rates would stay low for "an extended period," a more explicit vow to stay on hold with rates for a prolonged time than it had offered in recent months.
Twelve of the 16 so-called primary dealers that trade securities directly with the Fed said in a Reuters poll they expected the central bank to hold overnight rates near zero into next year, if not further.