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| US Federal Reserve chairman Ben Bernanke |
June
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US Federal Reserve Takes Step To Boost Recovery
10 August 2010 Last updated at 16:24 ET
US Federal Reserve chairman Ben Bernanke The Fed said economic recovery was likely to be "more modest" in the short term
The US Federal Reserve has taken a step towards boosting economic recovery, by saying it will use proceeds from its investments in mortgage securities to buy longer-term government debt.
There had been speculation that it may choose to revive the "quantitative easing" (QE) scheme, pumping in more money to prop up a softening recovery.
The option it has taken has been dubbed "QE lite" by some commentators.
The Fed also kept interest rates unchanged at between zero and 0.25%.
Stock markets recovered some of their earlier losses after investors reacted positively but still cautiously to the news.
The Dow Jones index, down about 100 points before the Fed announcement, was only 15 points lower shortly afterwards. It closed down 54 to 10,644.
US government bond prices also rose.
Constraints on spending
In a statement, the Fed said the pace of recovery had slowed in recent months and is likely to be "more modest in the near term than had been anticipated".
"Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit," the central bank said.
Some analysts say the move could mean that money can be borrowed cheaply for a longer period of time.
"The Fed's investments in longer-dated Treasury debt should... lower mortgage and other borrowing rates," Stephen Gallagher and Aneta Markowska from Societe Generale commented.
Others believe the Fed will have to take further steps in the coming months.
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Should the Fed take more steps to boost the economic growth in the coming months? Maybe lower the interest rates?
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