Fed To Keep Level Of Asset Holdings To Boost Economy

Aug. 10 (Bloomberg) -- Federal Reserve officials will maintain their holdings of securities to prevent money from being drained out of the financial system in their first attempt to bolster the economy in more than a year.

The central bank said it will reinvest principal payments on its mortgage holdings into long-term Treasury securities. The Fed retained a commitment to keep its benchmark interest rate close to zero for an “extended period.”

“The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement after meeting today in Washington. “To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level.”

Stocks pared losses, the dollar weakened and Treasuries rallied. With growth slowing in the second quarter and company job gains in July falling short of estimates, today’s step signals that risks of a downturn have increased enough for the Fed to delay its exit from unprecedented stimulus. Chairman Ben S. Bernanke told Congress last month that the Fed was “prepared to take further policy actions as needed.”

“With the economy slowing and inflation low, it is too early to pull in the horns,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The last thing they want is a smaller balance sheet.”

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