Fed Expected To Continue Bond Buying

The Wall Street Journal predicts that the Federal Reserve is going to continue with more of the same. Ugh.

Central bank officials face critical decisions at their next policy meeting Dec. 11-12. The most pressing is whether to move forward with bond-buying programs in which the Fed is accumulating immense stockpiles of long-term mortgage-backed securities and Treasury bonds. The bond-purchase programs are meant to drive down borrowing costs, and in turn boost the prices of assets like stocks and homes, and stimulate hiring, spending and investment.

The Fed signaled strongly in September that it was inclined to sustain these programs and markets have anticipated some combination of bond purchases will continue next year. Several Fed policy makers have suggested in recent interviews and public speeches that they support more bond buying. At their meeting next month, officials will debate extending the programs and hear staff presentations on their impact.

The Fed has been experimenting with different bond-buying programs since late 2008. In all, it has accumulated $900 billion in mortgage securities and more than $1 trillion in long-term Treasury securities since then. Critics of these policies inside the Fed and out worry that the programs could cause inflation or asset bubbles.

Moreover, Fed officials acknowledge that the programs aren’t as powerful as they were during the financial crisis.

Read the whole thing, because that’s not all they’re doing. They’re debating whether they should end Operation Twist, a scheme of buying long term Treasury securities with short term Treasury sales. Apparently, they’re running out of short term Treasurys to sell, so they have to basically print money to keep buying long term bonds.

Update: The latest jobless claims data probably won’t do anything to convince the Fed to put an end to QE3.

Update: Linked by Big Pulpit – thanks!