General Financial News
Federal Reserve will buy government debt
Aug 10, 2010 02:14 PM
The Federal Reserve will buy up U.S. Treasury notes, reports the NYTimes. The paper broke the news of further quantitative easing measures and a comment from the Fed that "the pace of recovery in output and employment has slowed in recent months."
The Federal Reserve will use proceeds from its mortgage-bond portfolio to buy long-term Treasury notes, injecting cash into the economy as it did back in 2007, the paper reported.
The benchmark short-term interest rate will remain unchanged.
This news will likely push up stock index and commodity futures, as investors see more government support for the economy. In addition, the increase in the money supply will raise fears of inflation, which will likely have a negative impact on the dollar and a positive impact on foreign currencies and most commodities.
U.S. stock indexes spiked after the announcement. The major indexes spent most of the day 1 to 2 percent below Monday's close.
At 2:15 p.m. EST, Dow Jones Industrial Average Index futures were down 46 points to 10,620, after being negative by over 150 points earlier in the day.
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