The Federal Reserve Board of Governors last week said it would swap $400 billion of short-term securities for longer-term bonds, citing the “continuing weakness in overall labor market conditions” as being a key motivator behind the move.
At a meeting of the board last Wednesday, the Fed said it would buy $400 billion in long-term securities by the end of June 2012 that would be offset by the sale of an equal amount of short-term Treasury bonds, with the swap aimed at boosting lending activity by putting downward pressure on longer-term interest rates.
In a statement, the board pointed to a number of distressing economic figures that led to its actions.
“Recent indicators point to continuing weakness in overall labor market conditions and the unemployment rate remains elevated,” said the statement. “Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased.”
Three board members ”“ Dallas Fed President Richard W. Fisher, Minneapolis Fed President Narayana Kocherlakota and Philadelphia Fed President Charles I. Plosser ”“ voted against taking any action.
Additional measures taken by the board include a reinvestment in mortgage-backed securities to address difficulties in the housing sector, which “remains depressed,” according to the board”™s statement.
Chris Jordan, president and CEO of Lexco Wealth Management Inc. in Tarrytown, said the Fed”™s views appear to have changed very little since the August meeting of the Federal Open Market Committee.
“Clearly it”™s an effort to push rates down even further and try to stimulate the economy without spending any money,” Jordan said, calling it something that is “very, very hard to pull off.”
Jordan said that the board”™s reassurance that it would keep the target range for the federal funds rate at 0 to 0.25 percent until at least mid-2013 is good news for businesses, but that it does little to address other major issues being faced by the economy, namely unemployment.
“The reaction of the markets shows that it was looking for something a little more aggressive,” he said. “Obviously this is a difficult period to try to stimulate given where we are right now.”
