US Fed moves to shore up faltering economy
11 August 2010
In its first attempt to shore up a faltering economic recovery in more than a year the US Federal Reserve has decided to use proceeds from its maturing mortgage bonds to buy more government debt.
The move to purchase Treasury bonds will allow the Fed to maintain its holdings of government securities at a steady level.
The indications ahead of the Tuesday meet were that the Fed was inclined to let its hoard of $2 trillion worth of securities shrink in a bid to control mounting government deficits and inflationary pressures.
The move will now ensure that money is not drained out of the financial system.
With the decision to buy government debt Treasuries surged, sending yields on 10-year notes to an 18-month low.
Mortgage-related securities were bought by the Fed as part of an emergency economic-recovery policy. These purchases were meant to aid the troubled housing market and keep mortgage rates low.