Fed Extends Operation Twist Through 2012
First Published Wednesday, 20th June 2012 04:55 pm - © 2012 Dow Jones
WASHINGTON--U.S. Federal Reserve officials signaled heightened worries over the economy on Wednesday, extended a program shifting their holdings toward longer-term securities through the end of the year and said they were "prepared to take further action" if needed.
The central bank stopped short, however, of immediately taking the more aggressive step of launching a new bond-buying program to bolster the U.S. economic recovery.
"The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability," the Fed said in its statement.
Eleven out of 12 Fed officials voted to keep the central bank's easy-money policies in place. The Fed has said since January that it plans to keep short-term interest rates at "exceptionally low levels" at least through late 2014.
The central bank has held short-term rates near zero since December 2008 in hopes of spurring spending and investment.
On Wednesday the Fed opted to extend Operation Twist, a program under which the central bank sought to lower long-term interest rates by selling shorter-term bonds and using the funds to buy longer-term bonds. Announced in September 2011, the program was scheduled to wrap up at the end of June.
Under the extension of Operation Twist, the Fed expects to buy and sell about $267 billion in Treasurys, the Federal Reserve Bank of New York said in a statement.
The Fed also conveyed concerns over the economy, noting that the growth in employment "has slowed in recent months, and the unemployment rate remains elevated" and that household spending "appears to be rising at a somewhat slower pace than earlier in the year." However, Fed officials left unchanged that the economy has been expanding "moderately" this year. The central bank noted that inflation has declined, largely because oil and gas prices have subsided. Long-term inflation expectations remained stable.
Later this afternoon the Fed will release updated forecasts for the economy and interest rates, to be followed by a press conference conducted by Fed Chairman Ben Bernanke at 2:15 p.m. ET.
The Fed forecasts could show slightly lower expectations for the pace of the recovery this year, as economic data has largely been weaker-than-expected since the Fed's last policy meeting in late April.
Federal Reserve Bank of Richmond President Jeffrey Lacker voted against the committee's action on Wednesday because he "opposed continuation of the maturity extension program," according to the statement. Lacker has dissented at all four FOMC meetings this year.
This week's FOMC meeting was the first for the two newest members of the Fed's board, Govs. Jeremy Stein and Jerome Powell. All seven Fed governors vote at every policy meeting, as does the president of the Federal Reserve Bank of New York, William Dudley.
The presidents of the 11 other regional Fed banks vote on a rotating basis. This year, in addition to Lacker, Cleveland Fed President Sandra Pianalto, Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams can vote.
Write to Kristina Peterson at email@example.com