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Saturday, August 14, 2010

Fed resumes policy easing as US economy slows


The US Federal Reserve eased its monetary policy further, even as it downgraded its economic outlook amid growing fears that the world's largest economy is losing momentum. Fed's policymakers agreed to begin reinvesting proceeds from expiring mortgage-backed securities in longer-term Treasuries, to prevent its massive balance sheet from shrinking. "To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities," the FOMC said in a statement.



The FOMC also said that it will continue to roll over the Fed's holdings of Treasury securities as they mature. The action was a small step but the clearest indication yet that Fed officials are getting more worried about the slackening of the economic recovery in the US.

The FOMC will maintain the target range for the federal funds rate at 0 to 0.25%. The Fed policymakers continue to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The FOMC said it will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.