With Federal Reserve Chairman Ben Bernanke’s latest announcement of a new bond-buying program linked to unemployment data instead of the calendar, commentators called it a “historic move,” “another innovation,” and a “surprise” that amounts to a “complete reversal” from the Fed’s days of using Fedspeak to disguise and obfuscate its moves.
After reviewing how the economy looks from the Fed’s point of view, Bernanke announced that his Federal Open Market Committee (FOMC)
will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion a month.
The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year [Operation Twist], initially at a pace of $45 billion per month….
In particular, the Committee decided to keep [making those purchases] at least as long as the unemployment rate remains above 6½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.
In short, the Fed will begin buying new government debt at the rate of $45 billion a month ($540 billion a year) until unemployment drops to 6½ percent, or inflation at the retail level reaches 2½ percent, whichever happens first. Then it will stop.
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