Fed replaces Twist and sets explicit targets

FXstreet.com (Córdoba) - The Federal Reserve announced on Wednesday it will continue to purchase additional agency mortgage-backed securities at a pace of $40 billion per month (QE3) and said it would initially begin buying $45 billion of long-term Treasury bonds each month, in an effort to support a stronger economic recovery.

The latest stimulus from the Fed will replace the expiring program known as "Operation Twist," in which the Fed has been buying about $45 billion of long-term Treasury bonds each month and selling about the same amount of short-term Treasurys. Unlike Twist, the new bond-buying program will expand the size of the Fed's portfolio of assets.

Meanwhile, the Federal Reserve also shifted its communication strategy saying that interest rates will remain exceptionally low (at 0-1/4%) as long as the unemployment rate stays above 6.5% and inflation between 1-2 years ahead is projected to be no more than a half percentage point above the Committee's 2% longer-run goal.

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