The long awaited day is here. In the spirit of QE2, aka quantitative easing part II, the Federal Reserve has announced $600 billion in U.S. Treasury purchases:
The Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
Also, the thing every one knows, they will keep the Federal Funds Rate at effective zero and sure doesn't look like they will raise it anytime soon:
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
Kansas City Fed President Thomas M. Hoenig voted against this.
But wait! There's more. From the New York Federal Reserve press release is appears they are actually buying up about $900 billion U.S. Treasuries de facto.
The FOMC also directed the Desk to continue to reinvest principal payments from agency debt and agency mortgage-backed securities into longer-term Treasury securities. Based on current estimates, the Desk expects to reinvest $250 billion to $300 billion over the same period, though the realized amount of reinvestment will depend on the evolution of actual principal payments.
Taken together, the Desk anticipates conducting $850 billion to $900 billion of purchases of longer-term Treasury securities through the end of the second quarter. This would result in an average purchase pace of roughly $110 billion per month, representing about $75 billion per month associated with additional purchases and roughly $35 billion per month associated with reinvestment purchases.
Wow, that's almost a trillion in U.S. debt. All of this by Q2 2011.
Notice also how the Mortgage backed securities the Fed currently holds is being transferred (in essence) to buying U.S. debt as those are sold off.
This will over double the U.S. Treasury bonds held by the Federal Reserve. Below is a graph of all Treasury securities, all maturities, held by the Fed. Expect this graph to rise dramatically. It won't just double overnight, but will increase about $110 billion per month until Q2 2011. That's a steep curve regardless. The latest numbers of the total bail out run by the Federal Reserve is released in report H.4.1 - Other Factors Affecting Federal Reserve Balances.