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In a Twist, Fed Stands Pat but Extends Twist

Wednesday, 20 June 2012 13:24 By Kevin G Hall, McClatchy Newspapers | Report

WASHINGTON — The Federal Reserve announced Wednesday it'd extend a controversial bond-buying program known as Operation Twist to help spark economic activity but gave only vague guidance about what kind of other steps it might be prepared to take to support growth and hiring.

Stocks had rallied Tuesday on anticipation of further guidance from the Fed on support steps, and all three leading U.S. indices fell from positive into negative territory seconds after the announcement was released by the rate-setting Federal Open Market Committee.

In its statement, the Fed noted that "growth in employment has slowed in recent months, and the unemployment rate remains elevated. Business fixed investmetn has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed."

Because of the deteriorating conditions, the Fed said, benchmark interest rates are likely to remain near zero through at least late 2014. And a program set to expire this month, where the Fed swapped out $400 billion in short-term bonds for bonds of longer duration, will continue through the end of the year.

The Fed did not indicate the size of the swap for the rest of the year, but said it would trade out bonds with maturities of three years or less for those with maturies of six years to 30 years. The Fed had been expected to change the mix of what it is swapping to include mortgage bonds, but did not make any such announcement.

"This continuation of the maturity extension program should put downward pressure on the longer-term interest rates and help make broader financial conditions more accomodative," the Fed said, explaining that the bond-buying should make it cheaper for businesses to take out longer-term loans and cheaper for consumers to buy cars, homes and other items that require longer-term loans.

There was only one vote against the action, Jeffrey Lacker, the president of the Richmond Fed, who opposed continuation of Operation Twist.

Later Wednesday, the Fed was to release an updated economic forecast and Chairman Ben Bernanke was scheduled to hold a press conference.

© 2014 McClatchy-Tribune Information Services. Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

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In a Twist, Fed Stands Pat but Extends Twist

Wednesday, 20 June 2012 13:24 By Kevin G Hall, McClatchy Newspapers | Report

WASHINGTON — The Federal Reserve announced Wednesday it'd extend a controversial bond-buying program known as Operation Twist to help spark economic activity but gave only vague guidance about what kind of other steps it might be prepared to take to support growth and hiring.

Stocks had rallied Tuesday on anticipation of further guidance from the Fed on support steps, and all three leading U.S. indices fell from positive into negative territory seconds after the announcement was released by the rate-setting Federal Open Market Committee.

In its statement, the Fed noted that "growth in employment has slowed in recent months, and the unemployment rate remains elevated. Business fixed investmetn has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed."

Because of the deteriorating conditions, the Fed said, benchmark interest rates are likely to remain near zero through at least late 2014. And a program set to expire this month, where the Fed swapped out $400 billion in short-term bonds for bonds of longer duration, will continue through the end of the year.

The Fed did not indicate the size of the swap for the rest of the year, but said it would trade out bonds with maturities of three years or less for those with maturies of six years to 30 years. The Fed had been expected to change the mix of what it is swapping to include mortgage bonds, but did not make any such announcement.

"This continuation of the maturity extension program should put downward pressure on the longer-term interest rates and help make broader financial conditions more accomodative," the Fed said, explaining that the bond-buying should make it cheaper for businesses to take out longer-term loans and cheaper for consumers to buy cars, homes and other items that require longer-term loans.

There was only one vote against the action, Jeffrey Lacker, the president of the Richmond Fed, who opposed continuation of Operation Twist.

Later Wednesday, the Fed was to release an updated economic forecast and Chairman Ben Bernanke was scheduled to hold a press conference.

© 2014 McClatchy-Tribune Information Services. Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

Hide Comments

blog comments powered by Disqus