The gyrations came ahead of the Fed's monetary-policy statement, due at 12:30 p.m. EDT. Fed Chairman Ben Bernanke will follow with a press conference at 2 p.m., amid speculation that the central bank will disclose the extension of its stimulus measure known as "Operation Twist," in which the Fed sells short-term Treasurys and buys longer-dated ones in an effort to keep long-term borrowing costs down.
The Federal Reserve will probably decide today to expand Operation Twist beyond $400 billion to spur growth and buy protection against a deeper crisis in Europe, according to a Bloomberg News survey of economists.
Fifty-eight percent of respondents in a June 18 poll said the Fed will prolong the program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio. The current program ends this month.
Policy makers led by Chairman Ben S. Bernanke may conclude that growth is too feeble to reduce unemployment much further after payroll growth came close to stalling in May. At the same time, with inflation close to their 2 percent goal and the Greek election reducing the risk of a euro breakup, they may decide an additional round of quantitative easing isn’t needed for now, economists said.
“Extending Operation Twist is the path of least resistance,” said Josh Feinman, the New York-based global chief economist for DB Advisors, the Deutsche Bank AG asset management unit that oversees $232.1 billion. “It would be an extension of something we have in place, so it would be more seamless, and it doesn’t complicate exit strategies as much because it’s not expanding the balance sheet,” said Feinman, a former senior economist for the Fed Board in Washington.
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