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The FOMC voted to keep the target federal funds rate at 0.00% to 0.25%, as expected. It also repeated recent statements by noting that conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
However, the Fed surprised many with its plans to keep constant its securities holdings by reinvesting principal payments from agency debt and agency mortgage-backed securities in Treasuries. That pronouncement drove the benchmark 10-year Note sharply higher, such that its yield dropped to a 14-month low of less than 2.75%.
Given that the Fed will hold its balance sheet constant, the decision to purchase Treasuries is not a means of quantitative easing, but it will likely keep the market thinking the Fed is moving closer to implementing new quantitative easing measures as it looks to support economic growth and price stability. |
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