Fed winding down Treasury purchases

The Federal Reserve will continue a program to purchase up to $1.25 trillion in mortgage-backed securities by the end of the year to keep mortgage rates down, but will wind down $300 billion in purchases of Treasury securities by the end of October.

The Fed had planned to wrap up its purchases of Treasury securities in September but will instead "gradually slow the pace" of purchases to "promote a smooth transition in markets" as the program reaches its $300 billion limit. The purchases have helped keep interest rates low but have raised concerns that the government is in effect "printing money" and raising the long-term risks for inflation.

In an announcement, the Federal Open Market Committee also said it expects inflation "will remain subdued for some time," and that its target for the federal funds rate will remain at zero to 0.25 percent. The federal funds rate is the rate at which banks lend each other money overnight, which the Fed can influence through monetary policy.

The Open Market Committee said economic conditions "are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

Conditions in financial markets have improved in recent weeks, with household spending showing signs of stabilizing "but constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit," the committee said. "Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales."

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