Confronted with a stumbling U.S. recovery and a financial crisis in Europe, the Federal Reserve decided Wednesday that it would extend a program known as "Operation Twist" aimed at pushing down long-term interest rates and boosting the economy.
The Fed said in a statement that while the economy has been expanding modestly throughout the year, growth in employment has slowed recently and unemployment remains elevated.
It said it expects economic growth to continue to grow moderately over coming quarters and then to pick up gradually. "Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate," the statement said. It shaved its forecast for economic growth in 2012, projecting that GDP would grow at a 2.4 percent rate max rather than the 2.9 percent pace it predicted in April.
As for unemployment, it now expects the jobless rate to stick around the 8.0 to 8.2 percent range, from 8.2 percent now and its April projection of around 7.8 to 8.0 percent.
The Fed also voted to keep interest rates unchanged at historic lows at least until the end of 2014.
Its assessment of the economy appeared slightly more negative than its previous outlook in April. For example, it pointed out that the pace of household spending seems to have slowed and that the housing sector remains depressed, despite some recent signs of improvement.
It also took pains to mention the situation in Europe, where eurozone officials are struggling to contain a debt crisis that threatens to engulf the continent and slow economies throughout the world, including the U.S. "Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook," the Fed said in its statement.
Given all that, the Fed said it would continue through the end of year to sell short-term securities and buy longer-term bonds to push down long-term interest rates. That strategy, known popularly as Operation Twist, originally was meant to end soon.
The Fed did not decide to provide the economy with what some felt would be stronger medicine by performing another massive round of bond buying, known as quantitative easing, and expanding its portfolio of assets. But Federal Reserve Chairman Ben Bernanke said in a news conference that the Fed was ready to do more to help the economy, if needed.
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"The Fed move to extend the Operation Twist program is conservative and wary. The central bank is signaling its concern for the economic future, both American and European, without unduly damaging the present by weakening the dollar," Worldwide Markets Chief Market Strategist Joseph Trevisani told Reuters.