Traverse City Record-Eagle

Archive: Thursday

June 21, 2012

Fed extends 'twist' program

Associated Press

WASHINGTON — The Federal Reserve acted Wednesday to lift an economy that's being held back by a weakened job market. It's extending a program designed to spur borrowing and spending through lower long-term U.S. interest rates.

The Fed also reiterated its plan to keep short-term rates at record lows until at least late 2014. And it said it's prepared to act further if the economy deteriorates.

The central bank noted that Europe's debt crisis threatens the economy. Fed officials will be watching for any breakthrough during a summit of European leaders in Brussels next week.

The Fed announced its action in a statement around 12:30 p.m. after a two-day policy meeting.

It will continue a program called Operation Twist through year's end. Under the program, the Fed has been selling $400 billion in short-term Treasurys since September and buying longer-term Treasurys. It said it will extend the program through December using $267 billion in securities.

But extending Operation Twist might not provide much benefit. Long-term U.S. rates have already touched record lows. Businesses and consumers who aren't borrowing now might not do so if rates slipped slightly more.

David Jones, chief economist at DMJ Advisors, said he expected the extension of Operation Twist to have only a slight effect on long-term rates, perhaps lowering them by about one-tenth of a percentage point.

"This move is largely symbolic," Jones said.

Investors appeared unimpressed with the Fed's plans to help the economy through lower long-term rates. Stocks were little changed for the day, and the yields on Treasury bonds were trading about where they were before the announcement.

The interest rates, or yields, on long-term Treasury debt dipped as traders anticipated that the Fed will buy more Treasurys.

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