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KyrosL

05/12/03 3:44 PM

#106886 RE: mlsoft #106865

mlsoft, the Fed buys no stocks and no bonds other than T-bills. If it did, it is required by law to disclose promptly such actions, just like it publishes promptly its trades in Treasury bills.

The Fed does not need to buy long term bonds to keep long rates low. All it needs to do is assure markets that it will keep short rates low "for a long time", which basically makes a carry trade of borrowing short and buying long almost risk free. It has done that pretty clearly in the last few months. The effect on the stock market is indirect, since by keeping the long bond price high, the relative value of stocks looks good, so people buy them as well.

Kyros