Europe, Weak Economy Add to Pressure on Fed

20-Jun (The Wall Street Journal) — Federal Reserve policy makers, meeting amid growing concerns about the U.S. recovery and the European debt crisis, have an array of options if they decide the economy needs an added boost.

Fed officials, concluding a two-day policy meeting Wednesday, could extend a program known as “Operation Twist,” in which the central bank sells short-term Treasury bills and notes and plows the proceeds into longer-term securities. They also could decide to shift the proceeds into mortgage- backed securities rather than long-term Treasury bonds.

Among other choices: launching a new round of bond-buying, known to some as quantitative easing, to expand the central bank’s portfolio of assets. Or they could alter the way they describe their plans for interest rates with an assurance that short-term interest rates will stay near zero beyond 2014.

Policy makers also could stand pat but offer assurance that they stand ready to act if the economy gets weaker.

With the exception of standing pat, all these moves would be aimed at bringing down long-term interest rates and reducing credit costs more broadly to spur spending and investment.


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