Federal Reserve officials wrapped up their two-day policy meeting today, and the verdict on the state of the economy is in – kind of. Fed Chairman Ben Bernanke says the current economic situation – given the Eurozone crisis and an anemic U.S. economic recovery -- is “not entirely clear,” so the Fed decided to take the moderate step of expanding the current asset-purchase program known as Operation Twist.
The extension will serve as a placeholder of sorts until the Fed has a better understanding of the state of the economy, and a better idea of how things will pan out in Europe. It’s not officially planning any additional quantitative easing, the strategy Delve reported on yesterday, but as CNBC noted, the Fed statement ended with the comment that it’s “prepared to take further action” -- stronger-than-usual wording that indicates Fed officials are ready to move quickly on further bad news.
In the first round of Operation Twist, the United States sold $400 billion worth of shorter-term Treasury bonds and turned the money around to purchase longer-term bonds, an effort that lowered long-term interest rates. The proposed six-month extension of Operation Twist - a $267 billion project - should maintain those lower rates. In a nutshell: The program has, and will hopefully continue, to soothe the markets until the state of the U.S. and global economies becomes clearer.
Policymakers also downgraded their projections for growth and inflation from their meeting back in April. More gloomy news: Forecasted rates for economic expansion decreased and those for unemployment increased.
That outlook promises to make campaign season tougher for Obama and could clear the way for Romney to attack the president on jobs. And if the central bank does decide to move ahead with further easing, the president could find himself on the defensive about both the stalled economy and government overreach.
The biggest takeaways for now, then, are pretty clear: the Fed isn’t as optimistic as it was in April, and is struggling to see where the economy is headed from here. So is everyone else.
Photo: Brendan McDermid/Reuters