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Pedestrians walked past the Federal Reserve Bank of New York. The Fed has been selling $45 billion a month in short-term Treasurys and using the proceeds to buy an equal amount of longer-term securities.

Seth Wenig, Associated Press

Fed ponders more bond buying

  • Article by: MARTIN CRUTSINGER
  • Associated Press
  • November 14, 2012 - 7:25 PM

WASHINGTON - The Federal Reserve may be preparing to take further steps to stimulate an economy that remains too weak to reduce high unemployment.

Minutes of the Fed's Oct. 23-24 policy meeting released Wednesday suggest it might unveil a bond-buying program in December to replace a program that expires at year's end.

The bond purchases would be intended to lower long-term borrowing rates to encourage spending and strengthen the economy. The hope is that more hiring would follow.

Under an existing program, called "Operation Twist," the Fed has been selling $45 billion a month in short-term Treasurys and using the proceeds to buy an equal amount of longer-term securities.

When Operation Twist ends after December, the Fed will run out of short-term investments to sell. The minutes show support among "a number of" Fed policymakers to replace Twist with another program of long-term bond purchases.

The minutes note that "several" Fed policymakers questioned whether additional bond buying would be needed as long as the economy sustained its modest gains. And "a couple" worried that keeping rates too low for too long could drive up inflation.

But Paul Ashworth, chief U.S. economist at Capital Economics, said he thought the Fed minutes made clear that a new bond-purchase program would likely begin after the year ends.

A new bond-buying program would come on top of a program the Fed launched in September. It began buying $40 billion a month in mortgage bonds to try to reduce long-term rates and make home buying more affordable. It was its third round of bond purchases.

The Fed also said in September that it planned to keep its benchmark short-term rate near zero through mid-2015. And it signaled a readiness to take other stimulative steps if hiring didn't pick up.

The Fed reaffirmed that stance at its October policy meeting but took no new action. Officials decided to wait to see whether the aggressive steps they announced in September would boost the economy.

In a statement after the October meeting, the Fed said that while the economy is improving moderately, job growth remained slow and the unemployment rate elevated. The rate is now 7.9 percent.

Many analysts say the economy is growing in the current October-December quarter at a weak annual rate below 2 percent -- too slow to drive down unemployment. In part, that's why the Fed will likely take further action at its final policy meeting of the year Dec. 11-12.

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