Fed likely to revamp its bond purchases
Plan aims to ease damage if no budget deal is reached to avoid cliff.
The Federal Reserve is expected to announce a revamped bond-buying plan Wednesday 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.
But its actions wouldn’t rescue the economy. Chairman Ben Bernanke warned last month that if the economy fell off a “broad ffiscal cliff,” the Fed probably couldn’t offset the shock.
Fears of the cliff have led some U.S. companies to delay expanding, investing and hiring. Manufacturing has slumped. Consumers have cut back on spending. Unemployment remains a still-high 7.7 percent. If higher taxes and government spending cuts last for much of 2013, most experts say the economy would sink into another recession.
On Tuesday, the Fed began a two-day meeting, which will end Wednesday afternoon with a statement announcing its policy decisions. Afterward, the Fed will update its forecasts for the economy, and Chairman Ben Bernanke will hold a news conference.
The expectation is 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