Treasury Bonds are a main source of income for the U.S. Federal Reserve. The reserve, which speaks in nuances, dramatically shifted nuances Tuesday, downgrading the economic recovery from "proceeding" to "modest." On June 23, the Fed's Open Market Committee said the "economic recovery was proceeding," but the winds shifted in the past month with disappointing data on jobs, consumer spending and factory production. On Tuesday, the Fed said the "pace of economic recovery is likely to be more modest in the near term than had been anticipated."The Fed backed up its new outlook with a move to put the proceeds of its securities holdings back to work, stating it would buy long-term Treasury notes rather than reduce its more than $2 trillion portfolio, which began the recession at $800 billion.Of note, the Fed is not resuming its purchases of mortgage-backed securities, which it piled on to the tune of $1.25 trillion in the past year, ending that program in March.Treasury yields immediately shrank, the 30-year bonds falling below 4 percent and 10-year notes dropping to 2.765 percent, a considerable shift considering how low the rates were before the announcement.Some said the program itself was a nuanced effort to maintain liquidity in financial markets, as it pumps about $10 billion a month into the bond market, which is modest in the grand scheme of things.Reactions were mixed."We do need more stimulus out there, and this is one way the Fed can do it," IHS Global Insight chief economist Brian Bethune told The New York Times.Other economists voiced skepticism noting the sum involved -- essentially keeping the Fed's portfolio at status quo -- was not enough to make a big difference. At least one cynic said the move was meant to provide the Fed with political cover -- a hedge, more or less, against criticism in the future.The Fed said it would continue with "exceptionally low interest rates for an extended period," the mantra of choice for the past year meaning the Fed's traditional leverage on liquidity, its bank-to-bank lending rate, is here for at least six months.The Fed also said "measures of underlying inflation have trended lower," which is amping a nuanced phrase to its full potential. To wit: Many say the underlying threat of deflation is near, but the Fed chose to define that as an ever-shrinking threat of inflation, a phrase that can only be shaved so close before it begins to sound like denial.But the mastery of nuances could be seen as a critical method for the Fed to maintain its influence on policy even beyond Wall Street. The Fed keeps its edge by issuing the most careful statements on the economy it can produce, which is why it sacrifices flamboyance for sobriety. That's why it rarely mentions the monsters in the closet. After all, there are always a lot of those around.In international markets Wednesday, the Nikkei 225 index in Japan fell 2.7 percent while the Shanghai composite index in China rose 0.47 percent. The Hang Seng index in Hong Kong lost 0.83 percent while the Sensex in India dropped 0.82 percent.In Australia, the S&P/ASX 200 fell 1.88 percent.In midday trading in Europe, the FTSE 100 in Britain lost 1.44 percent while the DAX 30 in Germany fell 1.69 percent. The CAC 40 in France lost 1.64 percent while the pan-European DJ Stoxx 50 slid 1.23 percent.
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