The Fed said it would purchase $400 billion in long-term Treasury securities with proceeds from the sale of short-term government debt.
Analysts said that the financial markets had been bracing for the Fed to announce it would sell shorter-term securities for longer ones to keep rates low, allowing businesses and consumers to borrow more cheaply, so they had priced in their expectations in the run-up to the two-day meeting of Fed policy makers that ended on Wednesday.
After the announcement, the 10-year bond yield was at 1.871 percent — a new low — compared with 1.939 percent late Tuesday.
On Wall Street, the Dow Jones industrial average and the Standard Poor’s 500-stock index were each down by just over 1 percent within a half-hour of the announcement. The Nasdaq composite index slipped about 0.5 percent.
Trading before the announcement had been mostly mixed, with the Dow and the broader market as measured by the S. P. 500 lower by less than 1 percent, while the Nasdaq was up about 0.4 percent. The Dow turned briefly positive after the Fed announcement, but then declined.
Specifically, the Fed said that by June 2012 it would sell $400 billion in Treasury securities with remaining maturities of less than three years and purchase roughly the same amount of securities with maturities longer than six years. It said the result would move the average maturity of the bonds it holds to about 100 months from 75 months.
“The Fed presumably expects lower borrowing costs to increase demand for big-ticket items, including homes and automobiles,” Clark Yingst, the chief market analyst for Joseph Gunnar, said in a statement released before the announcement.
Economists at IHS Global Insight said in a statement before the announcement that the move to shift the composition of the Fed’s balance sheet was “unlikely to have a big effect, especially since the markets have seen it coming.”
Energy, industrials and materials stocks were down by more than 1 percent on Wednesday. Financials were down by 0.9 percent before the Fed announcement.
Also Wednesday, Moody’s Investors Service cut its credit ratings on Bank of America, Citigroup and Wells Fargo, saying that Washington was now less likely to bail out the banks if needed. About two hours before the end of trading, Bank of America shares were down just over 3 percent, while Citigroup was down by 0.2 percent and Wells was up by 0.8 percent.
The equity market has also been recently focused on events in Europe, particularly on whether there was any progress in Greece, where government officials were speaking in conference calls with foreign creditors early this week. Hewlett-Packard traded 8 percent higher on news reports that its board was meeting to consider replacing its chief executive officer, Léo Apotheker.
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Binyamin Appelbaum contributed reporting.
Article source: http://www.nytimes.com/2011/09/22/business/daily-stock-market-activity.html?partner=rss&emc=rss