|June 19, 2012
The U.S. central bank will most likely ease monetary policy when it meets this week as recent data point to a worsening labor market and the crisis in Europe intensifies, Goldman Sachs said.
The Federal Open Market Committee will likely say it would buy assets such as mortgage-backed securities and U.S. Treasurys when it meets for a two-day meeting starting Tuesday, Jan Hatzius, the investment bank’s Chief U.S. Economist said in a report on Monday.
“We would be quite surprised if we saw no easing this week,” Hatzius wrote in the report.
The Federal Reserve may also extend Operation Twist, he added, although he does not find the “strategy very attractive.” The program – which involves the Fed selling medium-term bonds and using the proceeds to buy longer-term ones, such as 10-year Treasurys, effectively driving down longer-term interest rates – runs out at the end of June.
“We believe that an extension of Operation Twist could well be insufficient on its own and could thus be followed by additional easing action before long,” Hatzius said.
Instead, a “sufficiently large program” that involves mortgage-backed securities would help, he said, adding that while “it is unlikely to be very powerful, that doesn't mean Fed officials shouldn't do it.”