Fed Takes Small Step to Bolster Recovery
WASHINGTON (AP) _ More worried about the recovery, the Federal Reserve took a small step Tuesday to bolster the economy.
Wrapping up a one-day meeting, the Fed said it will use money from its investments in mortgage securities to buy government debt on a small scale. That could help nudge down long-term rates on mortgages and corporate debt, but wouldn’t have a dramatic impact on stimulating economic growth, economists say.
Perhaps more importantly, the largely symbolic action sends a signal that the Fed sees the recovery weakening and that it stands ready to take more aggressive action, if needed, to keep it on track.
Delivering a more downbeat assessment, the Fed now believes economic growth will be “more modest” than it had anticipated at its late June meeting.
The Fed, citing “subdued” inflation, said it would keep its target for a key interest rate at zero to 0.25 percent for a “extended period.”
Investors reacted positively to the statement. Stocks that were down sharply before the announcement made up some lost ground. The Dow Jones industrial average, down about 100 just before the Fed decision, was down about 60 a short time later. However, the market was likely to fluctuate, as it usually does while investors pore over the Fed’s statement.
Treasury prices rose slightly as investors were pleased by the Fed’s plan to buy government debt, which would reduce the amount of Treasury securities in the market. The yield on the Treasury’s 10-year note, which moves in the opposite direction from its price, fell to 2.77 percent from 2.82 percent just before the announcement.
Economists doubt the Fed can turn around the economy on its own. Some believe additional help from Congress is needed. Others are skeptical that easier credit or even more government aid will persuade Americans to shop more and hire more. Yet others think some jobs _ like in construction _ will never return to pre-recession levels, as the economy makes a structural shift.
Wall Street seemed to like the Fed’s action. The Dow Jones trimmed losses and was down around 100 shortly after the Fed’s announcement.