Investors are raising expectations the Federal Reserve will act to tame an upturn in yields by expanding its purchases of long-dated Treasury bonds, after the U.S. central bank said it would allow inflation to run higher.
FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo
Some investors said the central bank may need to address the possibility of buying longer-dated debt at its mid-September policy meeting, if not sooner. Investors had previously expected the Fed to introduce the policy by the end of the year. The Fed has purchased nearly $2 trillion in Treasury debt since the start of the coronavirus pandemic - bringing its current holdings to roughly $4.36 trillion - in order to keep interest rates low and maintain market liquidity. The majority of those purchases have been in shorter-dated notes.
Fed Chair Jerome Powell rolled out a sweeping rewrite of the central bank’s monetary policy on Thursday which prioritized strengthening the U.S. labor market and put less weight on concerns about inflation rising too high.
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