More Twist, Mortgage Buying Likely From Fed, Jersey Says

Federal Reserve Chairman Ben Bernanke
Ben S. Bernanke, chairman of the Federal Reserve. Photographer: Andrew Harrer/Bloomberg

The Federal Reserve is likely to provide added monetary stimulus when its current effort winds down, with an emphasis on extension of Operation Twist and further mortgage buying, according to Credit Suisse Group AG.

The probability of more central bank policy action reached 80 percent, up from 60 percent, the company said, after the Labor Department reported June 1 that U.S. employers added 69,000 jobs in May, the fewest in a year after an increase of 77,000 the previous month. The median forecast of 85 economists in a Bloomberg News survey before the jobs report was for an increase of 150,000 jobs.

“With the weak and slowing global and domestic economy and falling confidence, the case for a continuation of the current policy is very high,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of 21 primary dealers that trade with the Fed. “A move close to the status quo is likely, along with mortgage buying to further lower borrowing costs.”

The U.S. central bank has almost completed its program to replace $400 billion of shorter-term debt in its holdings with longer maturities to support the economy by keeping down borrowing costs. The program, known as Operation Twist, ends this month and the Federal Open Market Committee meets June 19-20.

Bernanke said April 25 that the Fed remains “prepared to do more as needed,” maintaining that inflation below 2 percent, along with sluggish jobs growth, may prompt Fed officials to increase accommodation. The central bank has already kept interest rates close to zero since December 2008 and expanded its balance sheet by buying $2.3 trillion in bonds.

Skepticism about the U.S. economic recovery as well as signs Europe’s debt crisis is worsening has driven U.S. 10- and 30-year bond yields to record lows. The 10-year note yield rose seven basis points, or 0.07 percentage point, to 1.52 percent in New York, according to Bloomberg Bond Trader prices.

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