–Retransmitting Second of Three Sections, Story Headlined 14:16 ET Wed

By Steven K. Beckner

Leaving the door open to additional quantitative easing if the
economy does not respond as hoped to the initial $600 billion of asset
purchases, the FOMC said it “will regularly review the pace of its
securities purchases and the overall size of the asset-purchase program
in light of incoming information and will adjust the program as needed
to best foster maximum employment and price stability.”

The FOMC went on to reiterate that it “will maintain the target
range for the federal funds rate at 0 to 1/4 percent and continues to
anticipate that economic conditions, including low rates of resource
utilization, subdued inflation trends, and stable inflation
expectations, are likely to warrant exceptionally low levels for the
federal funds rate for an extended period.”

And it added that it “will continue to monitor the economic outlook
and financial developments and will employ its policy tools as necessary
to support the economic recovery and to help ensure that inflation, over
time, is at levels consistent with its mandate.”

The FOMC had voted in August to reinvest proceeds of maturing
mortgage backed securities in Treasuries to prevent any shrinkage of the
Fed’s securities portfolio related to mortgage prepayments, and the New
York Fed has since been regularly buying Treasuries to maintain the
value of the Fed’s balance sheet at $2.054 trillion.

Wednesday, the New York Fed said in a statement accompanying the
FOMC announcement, it anticipates reinvesting $250 billion to $300
billion in Treasuries over the same period that it will be making the
newly authorized $600 billion of Treasury purchases.

“Taken together, the Desk anticipates conducting $850 billion to
$900 billion of purchases of longer-term Treasury securities through the
end of the second quarter,” said the New York Fed. “This would result in
an average purchase pace of roughly $110 billion per month, representing
about $75 billion per month associated with additional purchases and
roughly $35 billion per month associated with reinvestment purchases.”

The New York Fed released a table showing planned purchases in
eight maturity sectors and said “under this distribution, the Desk
anticipates that the assets purchased will have an average duration of
between 5 and 6 years.”

It said “the distribution of purchases could change if market
conditions warrant, but such changes would be designed to not
significantly alter the average duration of the assets purchased.”

As anticipated, the New York Fed temporarily relaxed its 35% per
issue limit on system open market account holdings, but said “SOMA
holdings of an individual security will be allowed to rise above the 35%
threshold only in modest increments.”

The New York Fed further announced that “purchases associated with
balance sheet expansion and those associated with principal
reinvestments will be consolidated into one set of operations to be
announced under the current monthly cycle.” And it said that “on or
around the eighth business day of each month, the Desk will publish a
tentative schedule of purchase operations expected to take place through
the middle of the following month, as well as the anticipated total
amount of purchases to be conducted over that period.”

One of the FOMC’s tasks at this meeting was to revise its
three-year, quarterly forecasts of growth, unemployment and inflation.
Those projections will not be publicly known for another three weeks,
but the FOMC’s characterizations of economic conditions contained in
Wednesday’s announcement suggest little, if any, improvement in the
forecast.

“Information received since the Federal Open Market Committee met
in September confirms that the pace of recovery in output and employment
continues to be slow,” it said. “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, though less
rapidly than earlier in the year, while investment in nonresidential
structures continues to be weak,” the FOMC statement continued.
“Employers remain reluctant to add to payrolls. Housing starts continue
to be depressed.”

“Longer-term inflation expectations have remained stable, but
measures of underlying inflation have trended lower in recent quarters,”
it added.

“Consistent with its statutory mandate, the Committee seeks to
foster maximum employment and price stability,” the FOMC announcement
went on. “Currently, the unemployment rate is elevated, and measures of
underlying inflation are somewhat low, relative to levels that the
Committee judges to be consistent, over the longer run, with its dual
mandate.”

“Although the Committee anticipates a gradual return to higher
levels of resource utilization in a context of price stability, progress
toward its objectives has been disappointingly slow,” it added.

The FOMC decided to pump more money into the economy even though
the GDP and inflation are showing positive growth.

-more- (2 of 2)

** Market News International Washington Bureau: 202-371-2121 **

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