MercoPress. South Atlantic News Agency

New York Fed will buy 18 billion of Treasury debt in nine operations

Fed admitted it expects more modest growth than anticipated

The New York Federal Reserve announced Wednesday it will buy about 18 billion US dollars of Treasury debt in nine operations from August 17 through September 13.

The amount of buying is equal to principal payments from agency debt and agency mortgage-backed securities to be received between mid-August and mid-September, according to the Fed.

On Tuesday the Fed said it would reinvest in Treasuries the principal payments from agency debt and agency mortgage-backed securities in an effort to keep constant the face value of its holdings of domestic securities.

The Fed move is aimed at jump-starting a slowing economy and averting deflation. The Fed said it will target the purchase of Treasury maturities in the two-to-10-year range.

Fed New York is to make its first purchase on August 17 of Treasury bonds maturing August 2014 and July 2016.

The list of operations includes Treasury bonds indexed for inflation, Treasury Inflation-Protected Securities August 30, maturing January 2011 and February 2014.

Meantime the US dollar fell on Wednesday to a 15-year low against the Japanese Yen as investors flocked to safe-haven trades after weak economic data was released by China following on the Federal Reserve bearish outlook announced Tuesday.

Following its two-day monetary policy meeting, the Bank of Japan decided on Tuesday to keep its benchmark interest rate unchanged at 0.1% as a means of supporting the country's recovery and tackling deflation.

But Bank of Japan Governor Masaaki Shirakawa told reporters that “we are well aware that the yen's strength is a downside risk for corporate sentiment.”

Early Wednesday, China reported industrial output slowed for the fifth consecutive month in July, reaching the lowest level this year. Equally alarming inflation in China -- measured by the consumer price index -- spiked to its highest level this year.

That news combined with the Fed’s announcement on Tuesday that it will take measures to stimulate the US economy, added steam to fears about a global economic slowdown.

“The pace of recovery in output and employment has slowed in recent months,” the Fed said in its statement. The central bank still expects the economy to grow, but it said the improvement will be ”more modest in the near term than had been anticipated”.

A downbeat outlook from the Bank of England on Wednesday also added fuel to the fire, sending US stocks sinking in pre-market trading as investors instead opted for the safe-haven appeal of Treasury, the Yen and the dollar. Against the Euro, the dollar rose 2.3% to trade at $1.29; it inched up 1.2% on the British pound to $1.57.