Up a point on this 'news' makes me laugh. Yet they are afraid to buy the very long end with under 3B on Monday. Any thoughts?

Note: I'm neutral here, even though it may look like I'm short judging by the title. So the comment is relatively unbiased from a trading point of view.

Here's a bloomberg take on it.

Fed Officials Raised Prospect of More Bond Purchases (Update1)
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By Craig Torres

May 20 (Bloomberg) -- Some Federal Reserve officials judged last month that the central bank may need to boost its purchases of assets to secure a stronger economic recovery, while all policy makers agreed to hold off on such a move at the time.

“Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery,” minutes of the April 28-29 Federal Open Market Committee meeting showed today in Washington. “All members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train” before making a decision.

U.S. central bankers cited a slower pace of contraction in their April statement, leaving the benchmark interest rate trading in a range of zero to 0.25 percent. They cited improved financial conditions, stronger sentiment from businesses and households and expectations of an increase in industrial production to replace inventories.

“Committee members agreed that the Federal Reserve’s large-scale securities purchases were providing financial stimulus that would contribute to the gradual resumption of sustainable economic growth,” the minutes said. “Members also agreed that it would be appropriate to continue making purchases” in the total amount of $1.75 trillion previously announced.

Ten-year Treasury yields fell for the first time in four days on expectations the Fed will purchase more government securities. The yield on the 10-year note fell 5 basis points to 3.2 percent as of 3:02 p.m. in New York.

Growth Forecast Cut

Fed governors and district-bank presidents cut their projections for economic growth in quarterly forecasts submitted at the meeting. They foresaw a deeper contraction in 2009 and a weaker recovery in 2010, with the unemployment rate projected to remain at 9 percent or higher through next year.

FOMC members also saw “some signs pointing toward economic stabilization,” and some officials detected prospects for “a trough” in the housing market’s downturn.

“Improvement in business activity is not far off,” Minneapolis Fed President Gary Stern said yesterday in a speech. “Interest rates are low and financial conditions are improving,” he said. “The improvement is gradually becoming more broadly based.”

Currency Swaps

By unanimous vote, the committee extended currency swaps with the Bank of Canada and the Banco de Mexico for an additional year, beginning in mid-December 2009. The swap with the Bank of Canada is $2 billion, and the swap with Mexico’s central bank is $3 billion.

A firming in consumer confidence, industrial production and other areas of the economy indicate the worst U.S. recession in five decades may be easing. Output at factories, mines and utilities decreased 0.5 percent last month after dropping 1.7 percent in March, Fed figures showed last week.

“Participants continued to see significant downside risks to the economic outlook,” the minutes said. “While financial strains and risk spreads had lessened somewhat over the intermeeting period, participants agreed that the global financial system remained vulnerable to further shocks.”

A gauge of confidence among U.S. consumers rose to 67.9 in May from 65.1 in April, according to the Reuters/University of Michigan preliminary index of consumer sentiment. Payrolls shrank last month by the least since October, falling 539,000 after declining 699,000 in March.

The economy is contracting at a 1.1 percent annual pace in the second quarter, according to estimates from Macroeconomic Advisers LLC, compared to a 6.1 percent annual rate of decline in the first three months.

New Forecasts

Central bank governors and regional bank presidents presented a new set of forecasts at the April meeting. Their central tendency ranges project the economy will shrink 1.3 percent to 2 percent this year and grow 2 percent to 3 percent in 2010. That compares with forecasts in January of a contraction this year of 0.5 percent to 1.3 percent and growth of 2.5 percent to 3.3 percent for 2010.

The officials forecast inflation, minus food and energy, will rise 1 percent to 1.5 percent this year and 0.7 percent to 1.3 percent next year. That compares to a January core personal consumption expenditures price index forecast of 0.9 percent to 1.1 percent for 2009 and 0.8 percent to 1.5 percent in 2010.

Unemployment Rate

Central bankers forecast the unemployment rate at 9.2 percent to 9.6 percent this year and 9 percent to 9.5 next year. That compares with forecast ranges of 8.5 percent to 8.8 percent for 2009 and 8 percent to 8.3 percent for 2010 in January.

The Fed has expanded assets on its balance sheet by $1.3 trillion over the past year to $2.2 trillion to replenish liquidity, narrow credit spreads and support borrowing and spending.

The central bank said yesterday that in July it will begin accepting commercial mortgage-backed securities issued before Jan. 1 into the Term Asset-Backed Securities Loan Facility, which provides financing to investors in asset-backed securities backed by consumer and business loans.

“The Fed has a pretty simple objective here and that is to keep the tone of the market improving,” Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York, said before release of the minutes. “They want to keep the momentum in the capital markets going.”

The Standard & Poor’s 500 index is up about 1 percent for the year on forecasts for better profit growth in quarters ahead.

Borrowing Costs

The cost of three-month dollar loans between banks in London has fallen for more than a month to 0.72 percent from 1.42 percent on Dec. 31, 2008, as confidence in financial institutions improves. The cost of a 30-year fixed rate U.S. mortgage fell to 4.86 percent on May 14 from 5.1 percent at the start of the year, according to Freddie Mac’s poll of a 125 lenders.

The Fed’s securities purchase program hasn’t prevented yields on U.S. notes from rising. Ten-year Treasury yields are up from 2.53 percent March 18 when the central bank said it would buy $300 billion of government debt over six months.

Banks are still struggling with rising loan delinquencies in a variety of categories. Nearly 8 percent of residential real estate loans were delinquent in the first quarter, up from 6.3 percent in the fourth quarter, according to seasonally adjusted Fed data.

Credit card charge-offs, or debts written off as unrecoverable, rose to 7.5 percent in the first three months of this year versus 6.3 percent in the fourth quarter, central bank data shows.

“Meeting participants noted that the volume of credit extended to households and businesses was still contracting as a result of shrinking demand, declining credit quality, capital constraints on financial institutions, and the limited availability of financing through securitization markets,” the minutes said.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net.

Last Updated: May 20, 2009 15:11 EDT