Tim McLaughlin, VP Weichert Financial Services
The Federal Reserve announced Wednesday that they will expand its program to replace short term bonds with longer term debt by $267 billion through the end of the year in a bid to reduce unemployment and protect the expansion.
The continuation of Operation Twist “could help make broader financial conditions more accommodative,” the Federal Open Market Committee said in their statement at the conclusion of a two-day meeting in Washington.
“Growth in employment has slowed in recent months, and the unemployment rate remains elevated,” the FOMC said. “Household spending appears to be rising at a somewhat slower pace than earlier in the year.”
Policy makers led by Chairman Ben Bernanke are taking steps to shore up the world’s largest economy as faltering growth leaves it vulnerable to fallout from the European debt crisis and looming fiscal tightening in the U.S. Payrolls expanded at the slowest pace in a year in May, and the jobless rate has been stuck above 8 percent since February 2009.
Policy makers left unchanged their view that economic conditions will probably warrant keeping interest rates “exceptionally low” at least through late 2014. The FOMC has kept the main interest rate in a range of zero to 0.25 percent since December 2008.
The Fed said it is “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.”
The Fed said it will sell Treasury securities with remaining maturities of about three years or less. It will purchase securities with six years to 30 years remaining.
The Fed left unchanged its policy of reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities.
Takeaway: While the market was anticipating a bazooka shot of infusion from the Fed, what they ended up getting was more like a slingshot. Nonetheless, rates still historically low.