The Federal Reserve plans to slow the pace of its purchases of U.S. Treasuries as the recession eases, and signaled that the $300 billion program will end in October.
“To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October,” the Fed’s Open Market Committee said in a statement in Washington. The program was previously scheduled to end in September.
Policy makers acknowledged signs that the worst recession since the 1930s may be ending, saying that data “suggests that economic activity is leveling out.” Chairman Ben S. Bernanke’s $1 trillion expansion of the Fed’s balance sheet, providing emergency funding for banks and markets from commercial paper to asset-backed securities, has helped thaw financial markets, which the Fed said have “improved further in recent weeks.”
“This is a vote of confidence that the credit markets and economic outlook has improved and will show even further improvement down the road,” said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. With regard to the Treasuries purchases, “they gave the market an extra one month -- a cold-turkey approach would have been a little too much for the market to take.”