US Federal Reserve to add more stimulus to economy

13 September 2012 18:18  [Source: ICIS news]

HOUSTON (ICIS)--The US Federal Reserve plans to start another stimulus package to spend billions buying longer-term securities in a move to lower interest rates and boost the nation's economy, the central banker said on Thursday.

In addition, the Fed plans to maintain low interest rates for even longer, to mid 2015. The federal funds interest rate has been at 0-0.25% since December 2008.

Under the stimulus package, the Fed will buy $40bn/month (€31bn/month) worth of mortgage-back securities, it said.

In addition, the Federal Reserve will continue extending the average maturity of its securities holdings, it said. This should last through the end of the year.

Also, the Federal Reserve will continue to spend some of its principal payments on buying more mortgage-backed securities, it said.

Altogether, the Fed expects its holdings of longer-term securities to increase by $85m/month through the end of the year.

The intention of the programme is to lower longer-term interest rates, support mortgage markets and loosen credit, it said. 

In announcing the stimulus programme, the Fed said that the economy was slowly adding jobs, while unemployment rates remained high.

Households were spending more money, but business fixed investments were slowing, it said.

Inflation remained subdued, outside of some key commodities, the Fed said. Longer term, prices should remain stable.

The latest stimulus package comes as the US economy continued to expand sluggishly since the recession ended in June 2009. 

It was among a series of Fed stimulus programmes.

On 21 September 2011, the Federal Reserve said that over the next 15 months it would purchase $400bn worth of US Treasury long-term securities, ranging from six-year to 30-year maturities, while at the same time selling an equal amount of its current holdings of short-term Treasuries, those with maturities of three years or less.

On 3 November 2010, the Fed said it would purchase $600bn worth of Treasury Department securities.

($1 = €0.78)

By: Al Greenwood
+1 713 525 2645

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