ADSENSE
Chairman Ben Bernanke, in a recent speech, explained how the Fed would "provide additional accommodation" -- first by buying bonds such as Treasury securities. This would add more cash to the banking system, presumably causing prices of goods and services to go up and long-term interest rates to go down.
The Fed sent mortgage rates downward when its rate-setting Federal Open Market Committee worried publicly that inflation is too low. The Fed's policy statement mentioned three times that inflation is uncomfortably low. It said inflation is at a level inconsistent with central bank's mandate "to promote maximum employment and price stability."
Central bankers said in the statement they were "prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."
Now, if there's a possibility the Fed will pay top dollar for Treasuries in a few weeks -- as the Fed's statement implied -- there's an opportunity for investors to make profits: Buy Treasuries now and sell them when the Fed bids the prices up in a few weeks.
That seems to have happened in the day after the Fed announced its rate policy. Bond yields go down when bond prices go up. And Treasury yields went way down. The 10-year Treasury yielded 2.72 percent Monday and 2.53 percent Wednesday afternoon -- an unusually swift drop.
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