“In a very rare move — signaling not only the weakness of our economy but the willingness to go big – The Federal Reserve just announced that it will start buying long-term government bonds; up to $300 billion in long-term Treasury securities over the next six months.

Doing so could help the economy because many kinds of debt — from mortgages to corporate bonds — are linked to Treasury rates.

Fed purchases would boost Treasury prices and drive down their rates — refi’s will skyrocket. That would ripple through and lower rates on other kinds of debt.

• At the same time, the Fed left a key short-term bank lending rate at a record low of between zero and 0.25 percent. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most — if not all — of next year.
• The Fed also said it will buy more mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac, in a move to help the crippled mortgage market. The central bank will buy an additional $750 billion, bringing its total purchases of these securities to $1.25 trillion.
• The Federal Reserve will also boost its purchase of Fannie and Freddie debt.

Tags: credit easing, Federal Reserve

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