Fed Douses Purchases Talk, Urges Investors to ‘Relax’

From Bloomberg.com

Federal Reserve officials, encouraged by signs the recession is easing, doused speculation they will pump more money into the economy to hold down interest rates, while indicating they’re not ready to begin a retreat.

Fed policy makers voted yesterday to maintain the size and pace of their $1.75 trillion program to buy mortgage debt and Treasuries. The central bank said it sees a “gradual resumption of sustainable” growth even as “substantial” economic slack holds down inflation pressures.

The statement indicated policy makers need more time to assess the prospects for a recovery starting in the second half of the year before deciding to embark on any exit from their unprecedented credit programs. Complicating their task is an increase in Treasury yields, which yesterday’s message failed to stem: 10-year rates rose five basis points, the most in almost a week, and a further two basis points to 3.71 percent today.

“The Fed is reminding the hyperventilating bond market that it needs to relax,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Inflation will be low for some time because the economic weakness will be with us for a time. They are not about to start to thinking about an exit strategy.”