"Stop wasting my time..."
In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term...
"...You know what I want..."
...To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year...
"...You know what I need..."
...and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.
"...Or maybe you don't..."
Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.
"Do I have to come right flat out and tell you everything?"
The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. (FOMC Statement: Source)
"Give me some monnn-aaaay!"
(Today's Ten Year Treasury Performance:
Source)
Posts
What exactly does the Fed do with all these mortgage assets? Refinance them? I apologize if this is a stupid question but I don't understand if they're buying them up just to take them off the market or what.
ReplyDeleteAs far as I understand, this is being done just to get the nastier items off the balance sheets of the banks and to stuff cash down the throats of bankers everywhere. The Fed has already lowered the borrowing rate to about as low as its going to go, so now it's just printing money and forcing it into the market. The purchase of MBSs is (I think) just a pretense, since they're probably paying more for the securities then they will collectively ever be worth. The purchase of treasury bonds serves the purpose of a) lowering longer term rates and possibly b) financing some of this enormous stimulus debt.
ReplyDeleteI suppose its possible that the Fed could later transfer ownership of these securities to Treasury which could then start refinancing. But since so many of these securities are CDOs, I think that process would get real complicated.