The Federal Reserve yesterday announced not that it was ready to embark on another round of quantitative easing, as many had been expecting, but rather that it would push forward with more of "Operation Twist." That's the program in which the Fed sells off short-term debt while buying up longer-term bonds, with the aim of keeping long-term interest rates low.
It was somewhat surprising that the Fed didn't take stronger action, because it also announced that its forecasts for the remainder of the year show the economy slowing down more than previously expected. The Fed's estimate of GDP growth for 2012 was ratcheted down to between 1.9 and 2.4 percent, after an earlier forecast of 2.4 percent to 2.9 percent.
The latest estimate shows first-quarter GDP growing at 1.9 percent, so the Fed is, in some sense, simply taking stock of reality. They also projected the unemployment rate to stay on its current course, with a forecast of between 8.0 and 8.2 percent by the end of the year. It's currently at 8.2 percent.
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