Operation Twist Extended Until End of Year: Updated

The Federal Reserve moved today to extend “Operation Twist” through the end of the year, despite some expectations that it would announce another round of asset purchases today. The Federal Reserve will continue to replace its short-term bonds with longer-term debt through the end of the year by $267 billion. The extension of operation twist “should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative."

Policymakers left their view unchanged that economic conditions are likely to warrant keeping interest rates “exceptionally low” at least through late 2014.

The language describing the economy was slightly altered in May’s release from April's statement. The committee noted that “growth in employment has slowed in recent months, and the unemployment rate remains elevated.” They went on to note “household spending appears to be rising at a somewhat slower pace than earlier in the year.”

The FOMC stressed that they are “prepared to take further action as appropriate to promote a stronger economic recovery and sustain improvement in labor market conditions in a context of price stability.” This keeps the door open for further quantitative easing should the economic situation deteriorate significantly.

Update:

The FOMC revised down its economic forecasts by about 0.5% at today's meeting with 2012 growth expected to fall between 1.9%-2.4%. Unemployment forecasts for the end of the year were revised up as well by about 0.2% with expectations for he unemployment rate to remain in the 8.0%-8.2%range at the end of 2012.

In his press conference, Chairman Bernanke stressed that the Federal Reserve stands ready to provide additional  accommodation should economic conditions warrant it. He noted that another round of asset purchases (QE3) would be a consideration should the Fed move to further ease policy.

FOMC Fed Funds Forecast


See the FOMC's full forecast.

Watch Chairman Bernanke's Press Conference

 

June 20th Meeting	April 25th Meeting
Information received since the Federal Open Market Committee met in April suggests that the economy has been expanding moderately this year. However, growth in employment has slowed in recent months, and the unemployment rate remains elevated. Business fixed investment 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. Inflation has declined, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.	Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.	Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.
T o support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.	To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities. Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less. 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 Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. 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 Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.