WASHINGTON — The Federal Reserve on Wednesday delivered another round of monetary stimulus and said it was ready to do even more to help a U.S. economic recovery that looks increasingly fragile.
“We are prepared to do what is necessary. We are prepared to provide support for the economy,” Fed Chairman Ben Bernanke said at a news conference after a two-day policy meeting.
The central bank expanded its “Operation Twist” by US$267 billion, meaning it will sell short-term securities and buy long-term ones in an effort to keep borrowing costs down. The program, which was due to expire this month, will now run through the end of the year.
It also slashed its estimates for U.S. economic growth this year to a range of 1.9% to 2.4%, down from an April projection of 2.4% to 2.9%. It cut forecasts for 2013 and 2014, as well.
In addition, Fed officials said they expect the job market to make slower progress than they did just a couple months ago, with the unemployment rate now seen hovering above 8% for the remainder of this year. It stood at 8.2% in May.
The announcement of the extension of Twist met with a mixed reaction in financial markets. Prices for U.S. stocks and government bonds see-sawed. The dollar fell against the euro and rose against the yen.
“This is a small step. This is probably the least of their unconventional easing tools that they could have used,” said Ethan Harris, North American economist for Bank of America/Merrill Lynch in New York.
A number of economists said the Fed was likely to eventually launch a third round of outright bond purchases, or quantitative easing, which would expand the Fed’s holdings of assets.
“If we don’t see continued improvement in the labor market, we will be prepared to take additional steps if appropriate,” Bernanke said. “I think there should be some conviction that they are needed, but if we do come to that conviction, then we will take those additional steps.”
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