Fed Expands Operation Twist

Program to be expanded by $267 bln through year-end.

The Federal Reserve will expand its program to replace short-term bonds with longer-term debt by $267 billion through the end of the year in a bid to reduce unemployment and protect the expansion.

The continuation of Operation Twist “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Committee said today in a statement at the conclusion of a two-day meeting in Washington. Stocks and Treasury yields dropped after the statement.

Lower Inflation

Inflation “has declined, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable,” the Fed said today. Oil prices have slumped 23 percent to $84.03 a barrel yesterday since reaching a high of $109.77 a barrel in February, while the national average cost of gasoline has declined to $3.49 a gallon from a 2012 peak of $3.94 in April, according to data compiled by the American Automobile Association.

Bank of Japan

The Bank of Japan should be ready to “take appropriate actions without ruling out any options in advance” if the European crisis worsens, some of its board members said in May, according to minutes released today. The People’s Bank of China cut borrowing costs for the first time since 2008 earlier this month and loosened controls on banks’ lending and deposit rates.

Impact of Crisis

“We believe U.S. domestic and global economic conditions will be impacted by the European debt crisis, slowing growth in Asia and the uncertainty these issues create on the global economy and the demand for our services,” FedEx Chief Financial Officer Alan Graf said yesterday on an earnings call.

Mortgage Rates

The average rate on a 30-year, fixed mortgage fell to a record 3.67 percent in the first week of June, according to Freddie Mac.

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