Chairman Ben S. Bernanke is signaling the Federal Reserve will probably add to its record stimulus should the economy fail to make sufficient progress in creating jobs for 12.7 million unemployed Americans.
The policy-setting Federal Open Market Committee yesterday extended its Operation Twist program and will swap $267 billion in short-term securities with longer-term debt through the end of 2012. Fed officials also downgraded their forecasts for growth and employment while noting “significant downside risks” to the economy.
Bernanke said the economy is vulnerable to looming U.S. fiscal tightening and fallout from the sovereign-debt crisis in Europe. The FOMC, which has kept its benchmark interest rate near zero since December 2008, reiterated yesterday it expects to keep rates “exceptionally low” at least through late 2014.
Fed officials see growth ranging from 1.9 percent to 2.4 percent this year, down from an April forecast of 2.4 percent to 2.9 percent, according to their so-called central tendency estimates, which exclude the three highest and three lowest projections.
“It focuses them even more on the labor market, and it does suggest there is a bias toward further easing,” said Perli, who worked in the Fed’s Division of Monetary Affairs under Bernanke.