The Fed said in a statement that it is prepared to buy
longer-term Treasury securities if that “would be particularly effective
in improving conditions in private credit markets.” At its December
meeting, the Fed reported it was merely evaluating that option.
“Basically they are opening their wallets and are ready
to start buying more assets and extend that if necessary,” said Kurt Karl,
head of economic research at Swiss Re in New York, according to Reuters.
In a statement issued at the end of a two-day meeting, the
central bank’s policy-setting panel also said it was holding its target range
for overnight interest rates at zero to 0.25 percent — the level reached in
December — and repeated that rates could stay unusually low for some time.
The panel voted 8-1 in support of the decision. Richmond
Federal Reserve Bank President Jeffrey Lacker dissented, saying he thought the
Fed should move to a program to purchase government bonds.
After slashing its key rate to record lows at its previous
meeting, the central bank pledged anew to look to other unconventional ways to
revive the economy.
Chairman Ben Bernanke and his colleagues are battling a
three-headed economic monster: crises in housing, credit and financial markets
that — taken together– haven’t been seen since the 1930s.
Despite the Fed’s aggressive rate-cutting campaign, a string
of bold Fed programs and a $700 billion financial bailout program run by the
Treasury Department, credit and financial markets are still stressed and far
Yet, the Fed statement said there’s been some thawing of
frozen credit conditions.
“Conditions in some financial markets have improved, in
part reflecting government efforts to provide liquidity and strengthen
financial institutions; nevertheless, credit conditions for households and
firms remain extremely tight,” the statement said.
The central bank said it will be launching a program aimed
at bolstering the availability of consumer loans.
Under the program, which is expected to start in February,
up to $200 billion will be made available to spur auto, student and credit card
loans as well as loans to small businesses, the Associated Press reported. To
do that, the Fed will buy securities backed by those different types of
consumer debt. The Fed also hopes that action will lower rates on those loans.
The central bank is endeavoring to ensure a year-long
recession does not lead to a prolonged period of falling prices that could
further undermine activity.
“The committee continues to anticipate that a gradual
recovery in economic activity will begin later this year, but the downside
risks to that outlook are significant,” it said.