Sentiment is mixed this morning after yesterday’s FOMC meeting in which the Fed extended its program dubbed “Operation Twist” through 2012, lowered forecasts for 2012 and 2013 U.S. GDP, and said unemployment will remain high throughout this year. EU stock indices are mostly lower, while most sovereign debt spreads to bunds are tighter in that area, led by Spain and France after successful debt auctions.
FOMC Meeting
Officials at the Fed decided to extend “Operation Twist” by allowing for another $267B in longer-term debt purchases to replace short-term bonds throughout the rest of the year. They cut their estimates for 2012 growth after a slowdown in hiring last month, and they see little progress being made on unemployment the rest of the year. Their central tendency estimate for 2012 GDP was lowered from 2.4%-2.9% in April to 1.9%-2.4%. Seven FOMC participants said the first interest rate increase would occur in 2014, while six said it would occur in 2015. Inflation expectations remain muted, especially with oil prices remaining at their current depressed levels. The continuation of the program, known as 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 yesterday in Washington.