NEW YORK – The Federal Open Market Committee said it will extend the average maturity of its holdings of securities, buying by the end of June $400 billion of Treasuries with six to 30 years remaining to maturity and selling an equal amount of maturities three years and shorter, according to an announcement after the FOMC meeting.
“This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the statement said. “The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.”
The statement added, “To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.”
The additional policy accommodation was opposed by Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who all voted against the plan.
The FOMC left the target range for the federal funds rate at zero to 0.25% and repeated that economic conditions “including low rates of resource utilization and a subdued outlook for inflation over the medium run” will likely “warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
Other policy tools that would “to promote a stronger economic recovery in a context of price stability” were discussed at the meeting, according to the statement, and will be employed in the future if “appropriate.”
Growth remains slow, the panel said, with economic indicators suggesting continuing weakness in labor market conditions, and only modest gains in household spending, “despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.”
The Fed expects the economy to continue recovery, only slightly faster than it has been, which will prevent more than a gradual decline in unemployment.
Also, “significant downside risks to the economic outlook” remain, including global financial market stress. Inflation will be at or below levels consistent with the Committee's dual mandate,” usually about 2%, as energy and other commodity price spikes dissipate.
