Fed Takes Action

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Wednesday, November 3, 2010 - 3:25pm

Federal Reserve expected to buy $500-billion in treasury bonds to boost the economy.

In a high risk move designed to stimulate the economy and stave off inflation, the Federal Reserve announced Wednesday it will buy between $600 billion and a trillion dollars in Treasury Bonds from banks.

"What the purpose is, is to lower interest rates, lower longer term interest rates, lower mortgage interest rates, lower interest rates for firms when they borrow, lower interest rates consumers when they borrow. The impact is however is not going to be very large," explains former Federal Reserve Governor Laurence Meyer.

Analysts say the board didn't have a lot of other financial tools to lower interest rates any other way.

In October Federal Reserve Chairman Ben Bernanke expressed concern with the pace of the recovery.

Still, the government plan to buy long-term treasury bonds also adds more debt to the nation's bottom line at a time when voters ushered in new lawmakers promising to cut spending and taxes.

The White House and Federal Reserve have already tried to stabilize the teetering economy and there are some bright spots.

U.S. auto sales rose in October.

General Motors posted a 3.5 percent rise in sales while Ford posted a 19 percent jump.

Orders for manufacturing shot up 2.1 percent in September, the largest increase this year.

The government plans to buy the $600 billion dollars in treasury bonds through the middle of next year and also reinvest funds back into the economy.
 

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