Fed Hard At Work

The Federal Reserve has announced a major expansion of its balance sheet in order to resolve the financial crisis.In its statement last Wednesday,the central bank's Open Market Committee said the economy has continued to contract since January.Its policy to stabilize markets and provide financial and monetary stimulus will help resume growth.Nonetheless,the Fed will carefully monitor the size and composition of its balance sheet.It is expanding the sheet in buying up to 300 billion dollars of long Treasury bonds over the next six months,plus up to 750 billion in agency-backed mortgage securities.The OMC said interest rates will stay low for an extended period.The Fed anticipates expanding the range of eligible collateral for the TALF program.It will bring its total purchase of securities up to 1.25 trillion dollars this year.The expansion of agency-related purchases is aimed at supporting mortgage lending and housing.The Fed expects inflation to remain subdued,but the risk remains for weaker growth.