Will The Fed Take Extra Steps To Stimulate Economy?

All eyes are on the Federal Reserve today. The Federal Open Market Committee finishes its two-day meeting and they will issue a statement at 12:30 p.m. ET.

Remember, since the FOMC last met, all signs have pointed to a slowing economy and many are expecting the Fed to take further action to stimulate the economy.

Bloomberg surveyed economists and most of them believe the Federal Reserve is unlikely to announce the third round of quantitative easing. Instead, the economists said, they see the Fed expanding Operation Twist beyond $400 billion.

Bloomberg reports:

“Fifty-eight percent of respondents in a June 18 poll said the Fed will prolong the program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio. The current program ends this month.

“Policy makers led by Chairman Ben S. Bernanke may conclude that growth is too feeble to reduce unemployment much further after payroll growth came close to stalling in May. At the same time, with inflation close to their 2 percent goal and the Greek election reducing the risk of a euro breakup, they may decide an additional round of quantitative easing isn’t needed for now, economists said.”

One analyst said Operation Twist would be the “path of least resistance.” Fed Chairman Ben Bernanke is also scheduled to give a press conference at 2:15 p.m. ET.

Just for clarity, in Operation Twist, which was enacted in September, the Fed sold some of its medium-term bonds in order to buy longer-term ones. In theory that puts downward pressure on longer-term rates.

We’ll update this post with the latest, so make sure to refresh the page.

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