Federal Reserve, Citing Weak Economy, Bolsters Stimulus Efforts

Federal Reserve, Citing Weak Economy, Bolsters Stimulus Efforts The Federal Reserve, citing economic concerns, has announced a new round of stimulus efforts, including a new policy to purchase agency mortgage-backed securities (MBS) at a pace of $40 billion per month.

The new policy, which was made following a meeting of the central bank's Federal Open Market Committee, will be supplemented by a continuation of the Fed's program to extend the average maturity of its holdings of securities and reinvest principal payments from its holdings of agency debt and agency MBS back into its MBS purchasing.

‘These actions, which together will increase the committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative,’ said the Fed in a press statement.

The Fed has also announced that it would keep the target range for the federal funds rate at 0% to 0.25%, adding that ‘exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.’

The Fed stated that although economic activity has ‘continued to expand at a moderate pace in recent months’ and that the housing market has displayed ‘further signs of improvement, albeit from a depressed level,’ problems still remain in the general economy.

‘Without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,’ the Fed said. ‘Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.’Â


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