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Fiscal Cliff Looms Large as Market Eyes Fed’s Next Move

Markets expect the Fed to announce Wednesday that it will continue buying Treasurys, helping to keep rates low, but the course for near-term interest rates is more likely to be determined by the actions of politicians as “fiscal cliff” talks continue.

The Fed is widely expected to extend its monthly purchases of $45 billion in Treasurys but end the concurrent sale of shorter-duration Treasurys that it has been conducting under Operation Twist. Twist expires at the end of the month, and Fed watchers now expect its asset purchases to be rolled into a quantitative easing (QE) program, which will add assets to the Fed balance sheet, unlike Twist. The Fed is currently buying $40 billion a month in mortgage purchases as part of its QE3 program.

“I think the market expects to see, relatively speaking, little change. Probably the amount they buy will continue at $45 billion, but they’ll probably stop selling securities at the front end,” said David Ader, chief Treasury strategist at CRT Capital.

via CNBC [1]

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