The Federal Reserve issued their statement for September today and most on Wall Street found the statement to be a quite optimistic. For the first time since August 2008 the FOMC indicated that it sees the economy accelerating, albeit at a slower pace than they would like. Maybe the biggest news out of today’s statement came from the fact that the Federal Reserve will slow its mortgage securities purchasing program to avoid disrupting the housing market as the economy starts to recover. The Federal Reserve says they anticipate finishing the program by first quarter of 2010.

While the FOMC definitely sounded more positive today, they indicated that they will be keeping rates historically low for an extended period of time, hoping to boost economic growth going forward. The goal of the Federal Reserve at this point seems to be to wind down their programs that have boosted the economy, but do so at a pace that doesn’t upset market conditions or slow any potential progress that will be made in the future. The Federal Reserve announced last month that it would be finishing off its program of buying treasury securities and now it is stating that it will tiptoe out of the mortgage securities purchases as well.

Initially stocks rose to their highest levels of the year after the announcement, but by the end of the trading day the stock market had settled lower after investors decided to take profits following a very nice run in the market over the last few months. Clearly the stock market is starting to expect a recovery and the language from the Federal Reserve has improved quite drastically over the past few months. The main thing that the economy and consumers need now is businesses to start hiring once again and the unemployment rate to begin to fall.

Just minutes ago the Federal Reserve announced that it will be buying $300 billion in longer-term Treasury Bonds over the next six months in a major effort to help the economy recover. Economists and investment strategists were quite surprised by this move by the Federal Reserve Open Market Committee. In response to this move treasuries, especially intermediate-term treasuries have been bought up quickly as investors scramble to invest in the things that our government is investing in. If you would like to read the full text of the FOMC statement you can here.

Previously many experts believed that the FOMC would hold off on buying treasuries due to the risks of inflation in the future. Clearly the Federal Reserve has decided that it is willing to take the risk of causing inflation over the long run so that it can try to jump start the economy and provide stabilization to the overall markets.

What are the benefits of this major treasury buy on the market? The Fed clearly wants to drive mortgage rates lower and lower credit spreads on loans on balance sheets. This move also shows that the Federal Reserve has another major weapon to use to combat the crisis, when some were worried that they were left with very little to do.

Are there possible negatives to this move? The long-term risk of inflation is there, but it is one that the FOMC is likely not a bit worried about right now, and I can’t blame them. The bigger risk is that this does signal that the Federal Reserve believes that the economic crisis we are currently in is getting worse and worse and they needed to make a drastic move such as this one.

The bottom line is I believe this move overall is a wise one and one that should help in the long run, but the fact that this move had to be made in the first place has to give investors some pause about the state of the economy in the coming quarters.