There has been much debate about the Federal Reserve's recent action to reinvest proceeds from its maturing securities in longer-term Treasuries. Its motivation was initially a little cloudy, though subsequent clarification has been provided by Chairman Bernanke. The August meeting minutes were released today, and they provide even more detail to what the committee was thinking.
Here's how the paragraph on the action starts, just after noting the weakness of the recovery:
Against this backdrop, the Committee discussed the implications for financial conditions and the economic outlook of continuing its policy of not reinvesting principal repayments received on MBS or maturing agency debt. The decline in mortgage rates since spring was generating increased mortgage refinancing activity that would accelerate repayments of principal on MBS held in the SOMA. Private investors would have to hold more longer-term securities as the Federal Reserve's holdings ran off, making longer-term interest rates somewhat higher than they would be otherwise. Most members thought that the resulting tightening of financial conditions would be inappropriate, given the economic outlook.
It's clear from this that there were two things going on here. First, the Fed's portfolio was shrinking more quickly than it anticipated. If the U.S. was in the midst of a strong recovery, then that might have been okay. But considering the that Committee believed the economic outlook had deteriorated (stated earlier in the minutes), a shrinking portfolio wasn't good. The committee wanted to keep long-term interest rates low until the recovery strengthens.