Federal Reserve Struggles To Loosen Credit Market

The Federal Reserve is operating a program to buy over one trillion dollars worth of mortgage-backed securities. This keeps mortgage interest rates at record lows.

This program is expensive and members of the Federal Reserve board are arguing about whether to scale it back or to expand it.

Some board members argue that expanding the $1.25 trillion program will inspire a broader economic recovery.

Others argue that the economy’s mild signs of recovery are strong enough to merit ending the program.

The Federal Reserve ended up voting to not change its program.

The New York Times reports:

Earlier this year, the Fed began buying billions of dollars of Treasury notes and bonds backed by home mortgages in an effort to lower loan rates and get frozen credit markets flowing again.

Markets have responded, and now, officials inside the Fed and Treasury Department are facing questions about whether they should withdraw some of the extraordinary programs propping up the financial markets. Economists worry that pulling back too soon could drag the economy into a double-dip recession; investors worried about big deficits and the Fed’s expanded balance sheet say inflation could occur if the government is not watchful.

The Fed seemed more concerned about withdrawing its supports too soon.

“Because the improvement in financial markets was due, in part, to support from various government programs, market functioning might deteriorate as those programs wind down,” the committee’s minutes said.

The Fed’s benchmark interest rates are hovering at record low levels near zero, and officials say rates are unlikely to rise anytime soon. But in August, the Fed said its purchase of $300 billion in Treasury securities would slow gradually through the autumn before concluding at the end of October.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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