Federal Reserve Bank Keep Rates Unchanged While Purchasing Treasuries

The Federal Reserve Bank today announced their rate decision in which they decided to keep them unchanged between 0.00-0.25 percent which was expected by all analysts in the markets yet the U.S. economy still faces a prolonged recession and risks of deflation.

The markets today were not waiting for the interest rate decision as much as what their next step will be! The Feds are pessimistic about the outlook of the nation, Chairman of the Federal Reserve Bank Ben Bernanke earlier this week said that the recession was going to end this year and a recovery was bound to happen next year.

The statement accompanying decision said that the nation continues to shrink led from the mounting of job losses, falling household income, plunging equity and the frozen credit conditions which are pressuring Americans consumption.

Today the feds are announcing that they are going to purchase $300 billion in long -term Treasury securities and boost its purchase of agency debt and MBS as a way to increase sales in the housing market since this will revive lending and help the housing sector find its bottom.

When the housing market finds its bottom will help end the ongoing recession in the U.S. economy since this was the reason behind the downfall of the nation led from the sub-prime mortgage crisis.

Also the feds decided to boost the size of the Federal Reserve's balance sheet by buying an extra $750 billion of agency mortgage-backed securities as this will provide the credit markets with liquidity, which takes it to a total of $1.25 trillion. The central bank also mentioned they might widen the collateral accepted for loans under the Term Asset-Backed Securities Loan Facility (TALF). The Feds are also going to boost its buying of agency debt during 2009 by $100 billion to total $200 billion.

Bernanke is using every measure possible to ease the considerable strain in the financial markets while trying to avoid the most severe recession in 60 years. The markets did not take the news very brightly as we see the federal currency lose massive strength in the markets versus major currencies as they gained enough confidence to invest in higher yielding assets and sell lower yielding assets which weighed on the dollar.

The stock markets surged as traders felt that the U.S. economy was doing all they can to support the financial markets, as of 18:52 GMT the DOW leaped 97.49 points to 7,493.19 points, the S&P 500 jumped 17.73 points or 2.28% to 795.85 points while the NASDAQ climbed 33.37 points or 2.28% to 1,495.48 points.

Ecpulse

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