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US Federal Reserve extends 'Operation Twist' to boost economic growth

The program is designed to push down long-term interest rates and encourage people to borrow more money.

Ben bernanke reserve bank us economy 11 3 11Enlarge
Wall Street traders gather near a TV playing Fed Chairman Ben Bernanke's news conference on November 2, 2011 in New York City. (Mario Tama/AFP/Getty Images)

The US Federal Reserve said today it would extend the $400 billion program nicknamed Operation Twist until the end of the year as it lowered its forecasts for economic growth and employment.

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The Fed will add $267 billion to the program, in which it sells short-term bonds and uses the proceeds to buy ones with longer durations in the hope of pushing down long-term interest rates and encouraging more people to borrow money, NPR reported.

The decision to extend the program, which began in September and was due to expire at the end of this month, was announced at the end of the Federal Open Market Committee’s two-day meeting to discuss interest rate policy.

The Fed also sharply lowered its forecast for economic growth this year, predicting the economy to expand by 2.4 percent, compared with its April forecast of 2.9 percent. The politically sensitive unemployment rate is unlikely to fall below eight percent by the end of the year, the Fed added. The jobless rate is currently 8.2 percent and back in April policymakers had predicted it could be as low as 7.8 percent at year's end, the Associated Press said.

Members voted to keep short-term interest rates at near-zero percent, where they have been hovering since December 2008, according to the Wall Street Journal.

Noting that employment growth “has slowed in recent months” and the jobless rate “remains elevated,” the Fed said it was “prepared to take further action” as needed to boost economic activity.

Fed Chairman Ben Bernanke is due to hold his quarterly news conference later today and he is expected to be questioned about the impact of the euro zone debt crisis on the US economy and what the Fed plans to do if growth continues to slow, the Los Angeles Times said.

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http://www.globalpost.com/dispatch/news/regions/americas/united-states/120620/us-federal-reserve-extends-operation-twist-boost