Fed buys U.S. government bonds

Many investors had hoped for more liquidity, the volume of the new cash injection of U.S. central bank surprised, however: The sum total is more than $ 1000 billion. The U.S. stock markets reacted positively.
Faced with a key close to zero percent, the Fed, the economy of the country strauchelnde with another billion injection to boost the central bank buys long-term U.S. government bonds with a volume of up to $ 300 billion on. In addition, more asset-securities worth up to $ 750 billion in the balance sheet. This includes papers, with mortgages or student loans are deposited.

The U.S. stock markets responded with significant impacts on the announcement: The default values in the Dow Jones shot after a weak start to increase significantly. Also, the broad S & P 500 and the composite index of technology left the Nasdaq stock market losses. The dollar was opposed to the euro after noticeable.

The air for the monetary policy of the Fed is in the midst of the worst economic crisis for 80 years has become thin – further rate cuts are no longer possible. The central bank reacts so much like their Japanese counterparts for many years: a course with the so-called quantitative easing. It extends from its total assets to the economy with more liquidity supply. With the direct purchase of government bonds, the Fed also for higher prices and lower yields on the bonds. The result: The long-term interest rates fall.

The central bank head to President Ben Bernanke, the decision unanimously. At the same time, stressed the Federal Open Market Committee once again the existing deflationary risks. Some economists warn, however, the flooding of the money markets with ever more liquidity berge at least medium-term risks of high inflation – in fact it raises with the acquisition of government securities simply the note to the press.

The Fed had already tried to remedy the problem: The interval to 2300 billion dollars bloated balance sheet of the central bank was before the recent interest rate meeting is already at 1900 billion dollars have been shortened. The evening on Wednesday announced steps are likely to increase to a new $ 1000 billion in total assets provide.

The Bank of England had already with the direct purchase of domestic government bonds submitted. The Bank of Japan BoJ, which has years of economic crisis and fighting deflation, withdrew Wednesday after: it is their ongoing program to buy up Japanese government bonds at just under 220 billion euros to expand. The European Central Bank (ECB) on the other hand, with a current rate of 1.5 percent is still room below. However, the purchase of corporate bonds, known as commercial paper, discussed the economy with fresh money.

The Fed estimates that the economic downturn is now worse than at the previous meeting of the Open Market Committee: A passage of a recovery in the current year had spoken, is missing in the recent statement from the Fed officials. Federal Reserve Chairman, Bernanke reiterated that he would “under the circumstances, all available means to push forward the economic recovery and price stability.” The government initiated steps would help to stabilize the financial markets, which is a gradual resumption of growth “would entail. The benchmark rate from 0 to 0.25 percent when the Fed kept – it is loud, Bernanke for a long time there.

The world’s largest economy since December 2007 is in a recession. In the fourth quarter of shrinking gross domestic product at an annual rate of 6.2 percent. The unemployment rate has now reached 8.1 percent. Since the beginning of the year, nearly 4.5 million jobs in the U.S. have been lost.

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