FED To Ease Cliff Uncertainity

The Federal Reserve is set to take more action this week to support financial markets and the economy, as the central bank tries to stay predictable given all the uncertainty surrounding the fiscal cliff.

To accomplish this, the Fed may announce fresh monthly purchases of $45 billion of Treasurys, economists say. These new purchases will start in the new year after the existing Operation Twist bond-buying program expires.

The Fed’s two-day meeting starts Tuesday, and the interest-rate setting Federal Open Market Committee announces its latest monetary policy decision at 12:30 p.m. Wednesday. Federal Reserve Chairman Ben Bernanke gives a press conference at 2:15 p.m.

Under Twist, begun in September 2011, the Fed offset $400 billion of Treasury purchases with sales of shorter-term debt on its balance sheet.

While on the outside, the Fed wants to give the appearance of a steady hand on the tiller, behind closed doors it is another story.

“I think they are terrified of the fiscal cliff,” said Joseph Gagnon of the Peterson Institute for International Economics.

“They are pretty sure there would be a recession if there is no deal,” he said.

MarketWatch

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