NEW YORK — The Federal Reserve did what investors expected — it said it would buy Treasury bonds to help the economy. Stocks then plunged because investors saw a grim forecast behind the Fed’s plans.
The nation’s central bank said Wednesday it would buy long-term Treasurys and sell short- term ones to help the economy regain momentum. It surprised investors when it said it would include more 30-year bonds in its purchases than expected.
Financial analysts said stocks dropped as investors came to the conclusion that the Fed expects the economy to take years to recover.
“It’s being viewed as perhaps an admission that this is a longer-term issue that the U.S. economy is facing and not one that’s going to be solved over a couple of years,” said Oliver Pursche, president of Gary Goldberg Financial Services.
The major indexes fluctuated as they often do after major Fed announcements. The losses accelerated in the last hour of trading.
The Dow Jones industrial average lost 283.82 points, or 2.5 percent, and closed at 11,124.84. The Standard & Poor’s 500 index fell 35.33, or 2.9 percent, to 1,166.76. The Nasdaq composite fell 52.05, or 2 percent, to 2,538.19.
The yield on the 10-year Treasury note fell to a record low of 1.86 percent from late Tuesday’s 1.93 percent.
After a two-day meeting, the Fed said it would buy $400 billion in six-year to 30-year Treasurys by next June. Over the same period, it planned to sell $400 billion of Treasurys maturing in three years or less. The move is intended to drive down interest rates on long-term government debt and could lower rates on mortgages and other loans.
“When the Fed decides to take this type of action, it’s because things are serious,” Pursche said.
Wednesday’s trading recalled the sharp losses the market has suffered this summer as investors feared that the country was heading toward another recession.
