Following the two day meeting of the Federal Open Market Committee, it was decided that there won’t be another quantitative easing plan for now that will expand the Fed’s balance sheet; it was decided that the Fed will purchase $400 billion worth of Long Term Securities in exchange of Short Term Securities by the end of June 2012.
The FOMC held a two day meeting and decided to expand its investment in US long term securities: the Fed will further purchase by June 2012, $400 billion of Treasury securities with remaining maturities of six years to 30 years; in exchange it will sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This isn’t a QE3 because there is no expansion of the Fed’s balance.
This action should further decrease the long term securities’ yields and may further pressure traders to invest in the US stock market.
The FOMC also announced it will invest agency mortgage-backed securities and will also maintain its current policy:
“To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.”
The committee will continue to assess the progress of the US economy and might resurface the additional tools the FOMC have if new information will come up.
The Federal Open Market Committee decided to purchase $400 billion worth of Long Term Securities in exchange of Short Term Securities to be completed the end of June 2012. This isn’t a QE3 because there is no expansion of the Fed’s balance. The committee took this decision in a 7-3 vote for it. This action should further decrease the long term securities’ yields and help the US government rollover its debt. The financial markets didn’t react well to this news as the markets may have considered a more substantial involvement by the Fed and not a relatively small and modest purchase plan.
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Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.
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