Fed likely to re­vamp its bond pur­chases

Plan aims to ease dam­age if no bud­get deal is reached to avoid cliff.

Austin American-Statesman - - BUSINESS - By Martin Crutsinger A trader works Tues­day at the New York Stock Ex­change, where stocks opened higher ahead of a Fed­eral Re­serve meet­ing and pos­si­ble steps to bol­ster the econ­omy. RICHARD DREW / AS­SO­CI­ATED PRESS

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

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