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- * Fed extends Twist stimulus to tune of $267 billion * Central bank says stands ready to do more * Fed cuts growth forecast; unemployment forecast dimmer By Mark Felsenthal and Pedro da Costa WASHINGTON, June 20 (Reuters) - The U.S....
Thu Jun 21, 2012 3:55am IST
* Fed extends Twist stimulus to tune of $267 billion * Central bank says stands ready to do more * Fed cuts growth forecast; unemployment forecast dimmer By Mark Felsenthal and Pedro da Costa WASHINGTON, June 20 (Reuters) - The U.S. Federal Reserve onWednesday delivered another round of monetary stimulus and saidit was ready to do even more to help an increasingly fragileU.S. economic recovery. The central bank expanded its "Operation Twist" by $267billion, meaning it will sell that amount of short-termsecurities to buy longer-term ones to keep long-term borrowingcosts down. The program, which was due to expire this month,will now run through the end of the year. Fed Chairman Ben Bernanke, speaking at a news conferenceafter a two-day policy meeting, said the central bank wasconcerned Europe's prolonged debt crisis was dampening U.S.economic activity and employment. "If we are not seeing sustained improvement in the labormarket that would require additional action," he said. "We stilldo have considerable scope to do more and we are prepared to domore." The Fed slashed its estimates for U.S. economic growth thisyear to a range of 1.9 percent to 2.4 percent, down from anApril projection of 2.4 percent to 2.9 percent. It cut forecastsfor 2013 and 2014, as well. In addition, officials said they expect the job market tomake slower progress than they did just a couple months ago,with the unemployment rate now seen hovering at 8 percent orhigher for the rest of this year. It stood at 8.2 percent inMay. The Fed's announcement met with a mixed reaction infinancial markets. U.S. stocks see-sawed, with the benchmark S&P500 index closing down slightly, while prices for mostgovernment bonds slipped. The dollar fell against the euro androse against the yen. A number of economists said the Fed was likely to eventuallylaunch a more aggressive program to buy bonds outright. It hasalready purchased $2.3 trillion in debt in two earlier bouts ofso-called quantitative easing. "The burden of proof may now be on the incoming data toprove that a third round of large-scale asset purchases may notbe necessary," said Millan Mulraine, economic strategist at TDSecurities in New York. Wall Street's top bond firms still see a 50 percent chancethe Fed will launch a third round of so-called quantitativeeasing. DOWNBEAT ASSESSMENT Hiring by U.S. employers has slowed sharply, factory outputhas slipped and consumer confidence has eroded, with Europe'sfestering crisis and the prospect of planned U.S. tax hikes andgovernment spending cuts casting a shadow on the recovery. The economy grew at only a 1.9 percent annual rate in thefirst quarter - a pace too slow to lower unemployment - andeconomists expect it to do little better in the second quarter. The Fed, which has held overnight interest rates near zerosince December 2008, reiterated its expectation that rates wouldstay "exceptionally low" through at least late 2014. Six of theFed's 19 policymakers do not expect an increase until sometimein 2015. Richmond Federal Reserve Bank President Jeffrey Lacker, whohas dissented at every meeting this year, voted against thedecision to extend Twist. At his news conference, Bernanke pushed back against thenotion that the Fed's earlier bond-buying was not effective, andthat the central bank was running out of policy ammunition. "I do think that our tools, while they are nonstandard,still can create more accommodative financial conditions andstill provide support for the economy, can still help us returnto a more normal economic situation," he said. Even though Greek voters on Sunday supported candidates whoback taking painful steps to stay in the euro currency union,Europe's debt crisis remains a threat to the global economy andmany central banks are eyeing economic conditions warily. Minutes from meetings of the Bank of Japan and Bank ofEngland released on Wednesday suggest officials are poised toease policy again. China cut benchmark rates on June 7, whilethe European Central Bank could take action at its July 5meeting.
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