WASHINGTON US Federal Reserve Wednesday extended a program to stimulate the economy, which seems at risk of stalling, while renewing efforts to lower borrowing costs by offloading short term bonds to buy long-term bonds.
In a statement after its policy meeting, the Fed said it would extend Operation Twist, an effort to depress borrowing costs by selling short-term bonds to buy longer-dated ones, a move widely expected by market participants.
Expressing concern about strains in global financial markets emanating from Europe, the Fed said it was extending the Operation Twist program, earlier scheduled to last till year end, by buying $267 billion in longer-dated securities.
"This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative," the Fed said.
The Fed added that for the duration of the new program, it would stop reinvesting the proceeds from maturing Treasuries in its portfolio.
Focusing on economy, the Fed stated that based on information received since the Federal Open Market Committee met in April, "the economy has been expanding moderately this year. However, growth in employment has slowed in recent months, and the unemployment rate remains elevated."
Going by the indicators, the Committee "expects economic growth to remain moderate over coming quarters and then to pick up very gradually."
On the positive side, the Fed pointed to continued advancement of business fixed investment, decline in inflation (mainly reflecting lower prices of crude oil and gasoline), and the fact that longer-term inflation expectations have remained stable
A persisting worry is the household spending, which appears to be rising at a somewhat slower pace than earlier in the year while the housing sector remains depressed.
"Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook," the Fed stated, anticipating that inflation over the medium term will run at or fall below the rate that it judges most consistent with its dual mandate.
To support a stronger economic recovery and to help ensure that inflation, over time remains at targeted levels, the Fed indicated plans to "maintain a highly accommodative stance for monetary policy".
