B2B sfyh.comFed offers fresh aid to shaky recovery
The Federal Reserve on Tuesday took a small but significant step to counter a weakening U.S. economic recovery, saying it would use cash from maturing mortgage bonds it holds to buy more government debt.
The decision to reinvest proceeds from the nearly $1.3 trillion in mortgage-linked debt, acquired during the 2008 financial crisis in an effort to keep borrowing costs down, represents a policy shift for the central bank.
Until recently officials had been avidly debating an exit strategy from the extraordinary monetary stimulus delivered during the financial crisis, but recent signs of weakness forced the Fed to downgrade its economic assessment.
That policy is not without drawbacks. It could expose the Fed to charges that it is printing money to help fund the government’s large budget deficit — something Fed officials have repeatedly vowed not to do.
Some officials have been worried that the economy could fall into a deflationary cycle of falling prices and depressed consumption if activity does not pick up.
Consumer prices excluding food and energy rose just 0.9 percent in the 12 months through June, holding for a third straight month at the lowest level seen since January 1966.
The fear of deflation elicits comparisons with Japan, which has long struggled with economic stagnation and falling prices.
The Bank of Japan, which also met on Tuesday, decided to hold off on any further easing measures despite a rise in the yen, which has rallied near a 15-year high on expectations of further measures by the Fed.
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