Thursday, June 21, 2012

US FOMC policy statement

US FOMC policy statement: the Fed will extend its maturity extension program (Operation Twist) for another 6mths. The Fed will purchase longer term Treasury securities (6 – 30 yr maturities) at the pace as in the original Twist program, roughly US$45b/mth, while simultaneously selling an equivalent amt of short term securities (<3yr maturity). The total purchases will amount to US$267b. When the program is finished at the end of the yr, the Fed will be holding almost no securities maturing inside of Jan ’16. There will be no QE3 for this round, but the Fed left the door open to doing more in the form of balance sheet expansion if economic prospects were to deteriorate significantly further. "We are prepared, in case things get worse, to protect the U.S. economy," in the words of Ben Bernanke. The Fed also sounded significantly less upbeat in its description of economic developments and prospects and more concerned about downside risks, especially related to Europe. Their forecasts for growth and the labor market were revised down commensurately, while their view of inflation prospects remains little changed (beyond recent commodity-driven declines).

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