Rent-to-own News - Fed to buy $600 billion in debt to spur economy

The Federal Reserve announced a second, large purchase of Treasury bonds on Wednesday in an effort to spur economic growth by lowering long-term interest rates though some fear the move could spur "long-term" inflation.

The New York Times reports that while the Fed has been signaling that it would act to bolster the economy, the announcement was the first major policy move since the midterm elections.

The Fed said it would buy an additional $600 billion in long-term Treasury securities by the end of June 2011, somewhat more than the $300 billion to $500 billion that many in the markets had expected.

The central bank said it would also continue its program, announced in August, of reinvesting proceeds from its mortgage-related holdings to buy Treasury debt. The Fed now expects to reinvest $250 billion to $300 billion under that program by the end of June, making the total asset purchases in the range of $850 billion to $900 billion.

That would just about double the $800 billion or so in Treasury debt currently on the Fed’s balance sheet.

In justifying its decision, the Fed noted that unemployment was high and inflation low, and judged that the recovery “has been disappointingly slow.”

The Federal Open Market Committee, which ended a two-day meeting on Wednesday, also left open the possibility of additional purchases.

“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 committee said.

As expected, the Fed left the benchmark short-term interest rate — the federal funds rate, at which banks lend to one another overnight — at nearly zero, where it has been since December 2008. The committee’s vote was 9 to 1.

Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City, dissented, as he has at every meeting this year. Mr. Hoenig “was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy,” the Fed said in a statement.

In a statement after the F.O.M.C. announcement, the New York Federal Reserve, which handles the bond purchases, said the purchases will include bonds ranging for less than 2 year to 30 years, with “an average duration of between 5 and 6 years.”

Economists disagree about how much the new round of debt purchases — a reprise of an initial, $1.7 trillion round that ended in March — will have on spurring consumer and corporate demand.

The new actions are likely to further drive down the value of the dollar, which as fallen about 7.5 percent since June against the currencies of major trading partners. That could exacerbate the trade and exchange-rate tensions that have threatened to unravel cooperation among the world’s biggest economies.

And then there is a risk that the Fed’s action could be neutralized by a new Congress that has vowed to contract government spending, a core argument that led to the overwhelming Republican victory on Tuesday.