The Federal Reserve tried Wednesday to lift an economy that is being held back by a weakened job market, as it extended a program designed to spur borrowing and spending through lower long-term U.S. interest rates.
The Fed also reiterated its plan to keep short-term rates at record lows until at least late 2014, and it said it is prepared to act further if the economy deteriorates.
The central bank noted that Europe's debt crisis threatens the economy. Fed officials will be watching for any breakthrough during a summit of European leaders in Brussels next week.
The Fed also sharply lowered its outlook for U.S. growth. It now thinks the economy will grow no more than 2.4 percent this year, down from its 2.9 percent forecast in April, and it thinks the unemployment rate, now 8.2 percent, won't fall much further in 2012.
After a two-day meeting, the Fed said in a statement that it will continue a program called Operation Twist through year's end. Under the prDogram, the Fed has been selling $400 billion in short-term Treasurys since September and buying longer-term Treasurys. It said it will extend the program through December using $267 billion in securities.
But extending Operation Twist might not provide much benefit. Long-term U.S. rates have already touched record lows. Businesses and consumers who aren't borrowing now might not do so if rates slipped slightly lower.
David Jones, chief economist at DMJ Advisors, said he expected the extension of Operation Twist to have only a slight effect on long-term rates, perhaps lowering them by about one-tenth of a percentage point.
"This move is largely symbolic," Jones said.
At his quarterly news conference later Wednesday, Fed Chairman Ben Bernanke said it is open to another bond buying program if the job market doesn't improve. The Fed has completed two such programs. Through those programs, it bought more than $2 trillion in Treasurys and mortgage-backed securities, expanding its portfolio above $2.8 trillion.
Investors seemed unimpressed with the Fed's plans to help the economy by extending Operation Twist. Stocks were little changed for most of the day, and the yields on Treasury bonds were trading about where they were before the announcement.
John Canally, investment strategist at LPL Financial, said the Fed delivered just what investors expected and offered a hint at further easing.
"If there's another misstep somewhere -- in Europe more weak data -- the Fed's going to do more," Canally said.