December 16, 2008

U.S. government bonds returned 12.7 percent this year, the most since they gained 13.4 percent in 2000, according to Merrill Lynch & Co.’s U.S. Treasury Master index.

“Over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant,” the Fed said in the statement.
The members of the committee are also evaluating the potential benefits of purchasing longer-term Treasury securities and will also implement the Term Asset-Backed Securities Loan Facility to extend credit to households and small businesses.
On the inflation front, the FOMC said that inflationary pressures have “diminished appreciably,” due to declines in the cost of energy, other commodities and the weaker prospects for economic activity.

The committee said it expects inflation to moderate further in coming quarters.
In another action, the Federal Reserve Board of Governors unanimously cut the discount rate by 0.75% points to 0.50%. The discount rate applies to banks borrowing from the Federal Reserve, while the federal funds rate refers to the interest that banks charge when borrowing from each other.

Goldman Sachs swung to a fiscal fourth-quarter net loss on slumping results at its trading and principal investments business, the banking giant's first quarterly loss since going public a decade ago.

Consumer prices declined 1.7% last month, as prices excluding food and energy were unchanged, suggesting the slumping economy are rapidly taking pressure off inflation. Housing starts fell to a record low.

Other official borrowing rates -- such as rates on 3-month Treasury bills -- also have tumbled to near zero, a level they haven't been near since the 1930s. The trouble for Fed officials is that while official borrowing rates are very low, interest rates for borrowers with even a modicum of risk remain far above levels of a few months ago, which is squeezing the economy.

Yale said it estimates its endowment has fallen 25% since June 30, the latest college to disclose the toll the economic crisis has taken on its finances.