Federal Reserve Chairman Ben Bernanke, chief inflation-watcher for the U.S. economy.(Photo: Manuel Balce Ceneta, AP)
WASHINGTON (AP) - The Federal Reserve is expected to announce a revamped bond-buying plan today to maintain its support for the U.S. economy.
The Fed's goal would be to keep downward pressure on long-term interest rates and encourage individuals and companies to borrow and spend. If it succeeds, the Fed might at least soften the blow from tax increases and spending cuts that will kick in in January if Congress can't reach a budget deal.
The two-day meeting ends today with a statement announcing the central bank's policy decisions. After that, the Fed will update its forecasts for the economy, and Chairman Ben Bernanke will hold a news conference.
It's expected that the Fed will unveil a program to buy $45 billion a month in long-term Treasurys. This would replace an expiring program called Operation Twist. With Twist, the Fed sold $45 billion a month in short-term Treasurys and used the proceeds to buy the same amount in longer-term Treasurys.
Twist didn't expand the Fed's investment portfolio; it just reshuffled the holdings. But the Fed has run out of short-term securities to sell. So to maintain its pace of long-term Treasury purchases and help keep long-term rates low, it must spend more and increase its portfolio.