The US central bank said Wednesday it will act to keep long-term borrowing costs low, to help stimulate the economy amid a weakening forecast. The Fed shaved 0.5 percent off its outlook for GDP growth this year.
In yet another effort to boost the US economy, the Federal Reserve Open Market Committee has decided to keep pushing down long-term interest rates, which could help people searching for a mortgage or corporations looking to do long-term financing.
However, the Fed's actions, termed Operation Twist because it involves the central bank selling short-term US treasuries and buying an equal amount of long-term bonds, disappointed those on Wall Street who had hoped to see more aggressive steps to stimulate the economy.
“I think there was a slight disappointment,” says Fred Dickson, chief investment strategist at D.A. Davidson & Co. in Lake Oswego, Ore. “There was a little bit of anticipation [that] the Fed would hint at the timing of some kind of additional easing or economic stimulus.”
Wall Street was also somewhat disappointed, says Mr. Dickson, to hear the central bank's forecast for the economy: modest weakening and little pickup in hiring. And, in an indication that the Fed expects the economy to be in slow motion no matter who is elected president in November, the Fed says it will keep short-term interest rates low through the end of 2014.
In a press conference Wednesday, Federal Reserve Chairman Ben Bernanke called the central bank’s new steps “substantive,” and said the Fed is “prepared to do what is necessary to provide support for the economy.”