Fed to buy up to $300B long-term Treasury bonds

WASHINGTON (AP) - The Federal Reserve announced Wednesday it will start buying long-term government bonds, its latest step to try to lift the country out of recession.

The Fed said it will buy up to $300 billion in long-term Treasury securities over the next six months. Doing so could help the economy because many kinds of debt - from mortgages to corporate bonds - are linked to Treasury rates.

Fed purchases would boost Treasury prices and drive down their rates. That would ripple through and lower rates on other kinds of debt.

At the same time, the Fed left a key short-term bank lending rate at a record low of between zero and 0.25 percent.

Economists predict the Fed will hold the rate in that zone for the rest of this year and for most - if not all - of next year.

The last time the Fed set out to influence long-term interest rates was during the 1960s with Operation Twist, conceived by the Kennedy administration.

Across the Atlantic, the Bank of England last week began buying government bonds from financial institutions as it turned to other ways to help revive Britain's moribund economy.

The Bank of England, like the Fed, already had lowered its key interest rate to a record low of 0.5 percent.

Finance leaders from top economies have discussed coordinating actions from their governments and central banks to provide a more potent punch against the global financial crisis. The Fed also said it will buy more mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, in a move to help the crippled mortgage market.

The central bank will buy an additional $750 billion, bringing its total purchases of these securities to $1.25 trillion. It also will boost its purchase of Fannie and Freddie debt.

(Copyright 2009 by The Associated Press. All Rights Reserved.)