Fed To Buy More Treasury Debt
At 2:15 PM yesterday, the Federal Open Market Committee made a big symbolic move, announcing it would buy Treasury debt in the 2-year to 10-year range to keep its $2 trillion of securities holdings constant. Otherwise, the portfolio of agency and mortgage-backed debt would have run off at $10 billion to $20 billion a month as homeowners prepay mortgages. Although that would have been a miniscule tightening of monetary policy, the Fed acted to support economic recovery. It is also the first step toward future inflation. The Fed is already bumping into its self-imposed limit on purchasing no more than 35% of any Treasury issue. With no signs of major deficit reduction from Congress yet, the Fed may have to buy a lot more Treasury debt in 2011 and beyond.
Pretty
It is a very pretty plan by the Fed, making sure each mortgage dollar gets back to the economy. But monetary policy is not meant to be pretty, but to be working efficiently.
As you're saying, it will have a minuscule impact on anything. Is this meant to reassure the economy that the Fed is sticking to its promises? If so, how long will it last?