WASHINGTON, DC-Worried that the economic recovery has stalled, the Federal Reserve Bank will be stepping up its investment in government debt. The decision was made during a one-day meeting, held on Tuesday, in which Fed officials came to the conclusion that the recovery is weaker than it had anticipated during its last meeting in June. It will use the interest it is earning from expiring mortgage-backed securities to buy Treasuries that are maturing in the next two to 10 years.
Last year and in the beginning of 2010, the Federal Reserve brought considerable firepower to the market, buying $1.25 trillion in mortgage securities, $175 billion in mortgage debt from the GSEs and $300 billion in government debt.
Treasury prices, not surprisingly, rallied after the Federal Reserve made its announcement--particularly those with five-to-seven-year maturity dates. The tactic is also expected to put some downward pressure on mortgage and corporate debt rates.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
