Economy

Federal Reserve To Keep Pumping Cash Into Economy

Federal Reserve officials issued their regular, post-meeting statement Tuesday in which the central bankers sounded, for yet one more month, like the street urchin from Annie who sings "The-sun-will-come-out-tomorrow. "

But, alas, as Annie says, "tomorrow is always a day away" and it seemed that way for the members of the Federal Reserve Open Market Committee as well.

Expressing their disappointment at the state of affairs, the central bankers said:

... The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

With the interest rates it controls effectively at or near zero, the Fed has essentially run out of bullets on that front.

So it said it will keep trying to prime the economic pump by keeping the money supply larger than it otherwise would.

It will do that by taking the money it collects from the principal payments on the government-backed securities it holds like those from Fannie Mae and Freddie Mac and turning around and purchasing U.S. Treasury bills.

More from the Fed statement:

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.

Analyst interpreted this as a sign of Fed jitters. From The Wall Street Journal:

Michael Feroli, economist at J.P. Morgan Chase, said the Fed's latest move indicates the central bank is "very concerned about the sustainability of the recovery."

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