Yesterday, the Federal Open Market Committee announced a new program of easing that entails buying US Treasury debt. The FOMC stated that, “…the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.”
The New York Federal Reserve detailed the purchases as the US central will buy maturities across the yield curve, but focusing most of their buying between 2.5 to7 years. What was surprising was that the Fed will buy up to $42 billion of longer dated US Treasury debt ranging from 10 to 30 years.
Today, US Federal Reserve chairman Ben Bernanke wrote an op-ed piece for the Washington Post defending this decision. “….low and falling inflation indicate that the economy has considerable spare capacity, implying that there is scope for monetary policy to support further gains in employment without risking economic overheating. The FOMC decided this week that, with unemployment high and inflation very low, further support to the economy is needed.”