The Federal Reserve’s program to buy $300 billion of Treasury securities in 2009 succeeded in lowering borrowing costs, according to researchers at the central bank.
The Fed’s so-called large-scale asset purchases on average lowered yields on Treasuries of all maturities by about 30 basis points and reduced yields on Treasuries due in 10 to 15 years by as much as 50 basis points, Fed economists Stefania D’Amico and Thomas B. King said in a paper dated September 2010. On days when the Fed bought debt, yields on the affected securities temporarily fell by another 4 basis points, the paper said. A basis point is 0.01 percentage point.
“It thus appears that the Treasury LSAP program was probably successful in its stated goal of broadly reducing interest rates, at least relative to what they would otherwise have been,” the economists wrote.
Fed officials are publicly disagreeing over the benefits of pursuing new monetary stimulus after the Federal Open Market Committee said Sept. 21 that it’s prepared to ease policy if needed to support its mandate to achieve stable prices and full employment.
The economists’ report supports Fed Bank of Boston Eric Rosengren’s remarks yesterday that by buying long-term Treasuries, the central bank would likely lower interest rates on government bonds and other long-term securities.
“We view these results as economically important,” the paper said. “A decline in longer-term Treasury yields on the order of 30 to 50 basis points is large by historical standards. Moreover if this decline had indeed been passed through to private credit markets, it would have represented a substantial reduction in the cost of borrowing for businesses and households.”
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