In light of the recent employment numbers, among other things, Eeyore and his friends in the Federal Open Market Committee admitted today that the “pace of the economic recovery is likely to be more modest in the near term than had been anticipated.”
As they observe in the notes from their meeting:
Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract.
Thus, the Fed announced, to keep the financial and housing markets afloat and prevent deflation, they plan to roll over the proceeds from the expiring mortgage-backed securities they bought during the financial crisis into long-term U.S. Treasury bonds, and will continue to do with the rest of the securities in the roughly $1.6 trillion portfolio they unhappily own until things improve. Ostensibly, they will also cross their fingers.
Press Release [Federal Reserve]
