Wall Street types are buzzing over a report that the Federal Reserve is mulling over a second round of U.S. Treasury purchases, a move the Fed said it was considering according to the minutes of its Sept. 21 Open Markets Committee meeting.
Rumor has it that the Fed wouldn’t spend as much as it did on its first round of government bond purchases, when it purchased about $1.7 trillion worth of government securities, but more spending is likely.
According to the minutes of the Fed meeting, “Many participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate, or if inflation continued to come in below levels consistent with the FOMC’s dual mandate, it would be appropriate to provide additional monetary policy accommodation.”
The minutes also showed that the Fed “is prepared to provide additional accommodation if needed”, reflecting “the members’ sense that such accommodation may be appropriate before long.”
“Meeting participants discussed several possible approaches to providing additional accommodation but focused primarily on further purchases of longer-term Treasury securities and on possible steps to affect inflation expectations,” the report added.Loosely translated, any move to buy more government bonds is likely to push bank rates down as the Fed tries to free up more money for credit and spending. That’s what happened in late 2009 and early 2010, when the Fed bought up government bonds in an effort to help the housing market kick into higher gear, and help consumers and businesses get their hands on more money.
We hate to say it, but bank rate investors once again seem like the last priority for government economic policy makers. Right now, it’s recession redux with the Fed using bank savers as pawns in a war to loosen credit and get the economy moving again.