Fed extends Twist

Bloomberg reports the outcome of the latest Federal Open Market Committee meeting:

The Federal Reserve will expand its Operation Twist program to extend the maturities of assets on its balance sheet and said it stands ready to take further action to put unemployed Americans back to work.

The central bank will prolong the program through the end of the year, selling $267 billion of shorter-term securities and buying the same amount of longer-term debt in a bid to reduce borrowing costs and spur the economy.

The decision came after the Fed lowered its growth forecast for 2012 to 1.9 percent to 2.4 percent, down from its April forecast of 2.4 percent to 2.9 percent. The unemployment rate is now forecast to end the year at 8 percent to 8.2 percent, up from 7.8 percent to 8 percent in April.

The Fed left open the possibility of providing more monetary stimulus later.

“If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Fed Chairman Ben S. Bernanke said at a news conference in Washington following a two-day meeting of the Federal Open Market Committee. “Additional asset purchases would be among the things that we would certainly consider.”

The Bank of England may also be close to another round of monetary stimulus after the minutes from the last policy meeting showed that officials were split 5-4 on such a move, with Governor Mervyn King in favour, and a report on Wednesday showed that claims for jobless benefit in the UK rose by 8,100 in May.

Minutes of the Bank of Japan's policy meeting in May also indicated some degree of readiness for more action among officials, although Japan's trade data for May suggested that the economy is still growing, with exports up 10.0 percent from a year earlier and imports up 9.3 percent.