Fed Pushes $1.25trn MBS-Buying Program Through March
[Update 1 adds statement from Federal Reserve Bank of New York.] The Federal Open Market Committee (FOMC) wrapped up its monetary policy meeting Wednesday, keeping -- as expected -- the federal funds rate at a 0 to 0.25% target range as inflation risk remains subdued. The FOMC, in its statement late Wednesday, indicated positive developments since its August meeting, although it plans to extend certain securities- and debt-purchasing programs into 2010. "Conditions in financial markets have improved further [since August], and activity in the housing sector has increased," FOMC members wrote. "Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit." But the Federal Reserve intends to continue its role in providing credit to the securities market. The FOMC confirmed the Fed is on track to buy a total $1.25trn of agency mortgage-backed securities (MBS) from Fannie Mae (FNM), Freddie Mac (FRE) and Ginnie Mae. The Fed will gradually slow the pace of the purchases in anticipation of a full execution of the program by the end of Q110 -- which ends in March 2010. It marks an extension of the MBS-purchasing program past the previously anticipated year-end date of December 2009. The slowing of purchases is intended to "promote a smooth transition in markets" as the government ends its participation in the agency MBS market. To implement the gradual slowing of agency MBS purchases, agents acting on behalf of the Federal Reserve Bank of New York's open market trading desk plan to reduce the average weekly purchase amounts beginning with the reporting week that starts September 24, according to a NY Fed statement. The Fed will also purchase up to $200bn of agency debt with a projected execution date also in March 2010. The Fed's purchases of $300bn of Treasury securities will complete by the end of October 2009. Write to Diana Golobay.