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Gloomy US pulls trigger on more stimulus

Gloomy US pulls trigger on more stimulus

Thu June 21, 2012 11:09am

THE US Federal Reserve unleashed a fresh wave of economic stimulus Wednesday as it predicted subpar US growth would be even worse this year than thought.

The Fed's top policy panel -- the Federal Open Market Committee (FOMC) -- decided to extend a bond-swap program dubbed "Operation Twist" that was to expire at the end of the month.

The plan is designed to push down interest rates on long-term bonds, encouraging investors to move money into more neglected securities and lowering costs for borrowers.

After a two-day meeting the Fed sharply revised down 2012 growth projections to between 1.9 and 2.4 per cent.

That was a half point cut from predictions made as recently as April this year, when cautious optimism reigned.

With Fed Chairman Ben Bernanke also pointing to slower progress in reducing unemployment and to spillovers from Europe's economic crisis, that optimism has been put to bed.

The central bank will continue to switch short-term US bonds for those dated between six and 30 years. In total the program will be worth around $267 billion.

Few are betting that this will be the last move by the Fed to juice the economy.

"It is almost surprising that the FOMC 'only' committed to a six-month extension of Twist," said Stephen Stanley, chief economist with Pierpont Securities.

Indeed, Mr Bernanke gave strong hints that further action could be in the pipeline, so long as recent poor economic data proves not to be a statistical blip.

"We are prepared to do more. We have to get, I think, further information about state of the economy, about where things are going, what's happening in Europe," he said at a news conference.

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