in his article, "the currency war may have just gone nuclear" peter a grant writes that yesterday's fed action was just the opening act, and there is much more to come:

There had been talk for months that the Fed was considering quantitative easing -- printing money and buying Treasuries -- as a means to support the long end of the yield curve. Such talk ramped up last week when the Bank of England took the debt monetization plunge and had some success in driving down gilt yields. It was reported that the Fed had taken notice.

With interest rates effectively at 0% and the economy still struggling, there was no doubt that the Fed was going to grow its balance sheet. However, in advance of the announcement, the market seemed to think the Fed would simply buy more mortgage backed securities (MBS) and agencies, holding off on buying Treasuries for the time being.

The Fed did indeed announce that it would seek to buy up to an additional $750 bln in MBS, bringing the total projected purchases of such assets up to $1.25 trl. They also announced that they would buy up to an additional $100 bln in agency debt, bringing that total up to $200 bln.

On top of all that, the FOMC decided that late next week the Fed would begin purchasing up to $300 bln in longer-term Treasuries, with emphasis on the 2 to 10-year segment of the yield curve. Purchases will be conducted by primary dealers two to three times per week through competitive auctions.

If recent history is any indication, one might assume that this $300 bln is merely an opening salvo. The Fed's "non-standard" measures have had a tendency to escalate rather dramatically in both size and scope over fairly short periods of time during this financial crisis.

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