WASHINGTON (Reuters) - The Federal Reserve Wednesday warned of significant risks to the fragile economy of the United States and launched a new plan to reduce the costs of long-term debt and strengthening the battered housing market.
The Fed said it would sell $ 400 billion of Treasury bills in the short term to buy the same amount of long-term debt of the latest attempt by the U.S. government to revive growth, which slowed to a crawl in the first half of the year.
Apparently frightened by the gloomy economic outlook of the Central Bank, the U.S. stocks have been sold. Standard & Poor's 500 Index closed almost 3 per cent.
The Fed said it would sell $ 400 billion of Treasury bills in the short term to buy the same amount of long-term debt of the latest attempt by the U.S. government to revive growth, which slowed to a crawl in the first half of the year.
Apparently frightened by the gloomy economic outlook of the Central Bank, the U.S. stocks have been sold. Standard & Poor's 500 Index closed almost 3 per cent.
Rates of long-term debt has increased, pushing can be lower - a sign of more aggressive measures, some investors had expected. Return on the benchmark 10-year note fell to its lowest level of 1.856 percent, the lowest in more than 60 years.
"Recent indicators point to continued weakness in the global labor market, and unemployment remains high," the Fed said in a statement after a two-day meeting. "There are significant downside risks to economic outlook, including strains on global financial markets."
By offering a new approach to stimulate the economy and falling unemployment, the Fed has ignored the Republicans on Capitol Hill, who had pressured the central bank to refrain from any action.
In addition to balancing the portfolio, the Fed has stepped up to strengthen the housing market, pledging to invest from the housing-related debt maturing in the back to keep the mortgage market.
Analysts said the Fed's actions could have a major impact, even if they have lower interest rates long term.
"The cost of lending is simply not the problem," said Paul Ashworth, economist at Capital Economics in Toronto. "Companies do not have the confidence to invest and half of all mortgages have no mortgage no refinance at lower rates."
Yet, faced with a high unemployment rate 9.1 percent and a growing debt crisis in Europe, Fed officials felt it necessary to do everything possible to try to breathe more life into a slow recovery in the U.S. .
Economy grew by less than 1 percent per annum for the first six years, and analysts have warned of increased risk of recession.
With Fed Chairman, Ben Bernanke, was reluctant to walk away, her activism has become a punching bag for politicians, an election year approaches. Top Republican lawmakers wrote to Bernanke this week urging the central bank to resist other economic interventions, the criticism made by Republican presidential candidates echoed.
Portfolio re-setting of an expansion plan to stop less true of the Fed's companies - sometimes called quantitative easing - the guy who made a lasting national and international critics for sowing the seeds of inflation and devalue the dollar.
However, some analysts expect the move will be part of a series of actions the Fed takes to help the economy. The Federal Reserve may cut the rate it pays on banks reserve stationed in the central bank, which could free loans, or promise not to raise the unemployment rate falls to a certain level.
By moving its bond portfolio in longer maturities, the Fed is trying to push long rates down, which we hope to stimulate business and mortgage refinancing loans and consumers.
Not all decision-makers were on the Fed's latest move in the same three officials, who had dissented against the decision in August to confirm a low rate mortgage also opposes the move on Wednesday.
Mohamed El-Erian, chief investment officer of Co-Head of PIMCO, the largest bond fund, said the combination of dissent and a dark vision highlighted the growing political divide.
IN GOOD COMPANY
The central bank said it will buy 400 billion in securities with maturities of six to 30 years in late June 2012, selling the same amount of debt maturing in three years or less.
The Fed is not alone in their concerns. The Bank of England said on Wednesday it was willing to inject more money into the weakening of the British economy. Norway noted that the central bank may refrain from raising rates more than expected.
The Fed had already started down to a very aggressive monetary policy easing Paths Record. Cut the overnight interest rates to near zero in December 2008 and then transferred to more than triple its budget through a series of bond purchases.
After the last meeting on August 9, the Fed said it hoped to keep prices rock-bottom level, at least until the middle of 2013, drawing a trio dissent.
Critics say the campaign of monetary easing has not produced the results and to warn it could actually cause damage by feeding inflation and debasement of the dollar.
"We have serious concerns that the involvement of other Federal Reserve could exacerbate existing problems or other damage to the U.S. economy," said Republican congressional leaders in their letter to Mr. Bernanke, whose They released Tuesday.
Central Bank's policy has become an issue during the presidential campaign. Texas Governor Rick Perry, the leading Republican candidate, said that most Fed printing money to be almost a "traitor".
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