Alternatively, the FOMC could increase the duration of the Federal Reserve’s holdings without expanding the size of its portfolio by selling assets with relatively short residual maturities and buying equal amounts of assets with relatively long residual maturities. Studies suggest that either action would reduce the term premiums embedded in longer-term interest rates considerably.
Current Economic Situation and Outlook While the coronavirus (COVID-19) pandemic has taken a tragic human toll measured in terms of lives lost and suffering inflicted, as a direct result of the necessary public health policies put in place to mitigate and control the spread of the virus, the pandemic has also inflicted a heavy toll on the levels of activity and employment in the U.S. economy.