With the recent string of weak economic data and the simmering eurozone debt crisis, the U.S. central bank announced on Wednesday to extend a bond-buying program intended to lower long-term interest rates while hinting at more steps if the U.S. economy sputters.

WEAK GROWTH

The U.S. economy has been expanding moderately this year. However, growth in employment has slowed in recent months, and the unemployment rate remains elevated, the Federal Open Market Committee (FOMC), the Fed's powerful interest rate setting panel, said in a statement.

"To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy," the FOMC said after its highly-scrutinized two-day policy meeting.

The Fed sharply lowered its outlook for U.S. economic growth this year, as the impacts of the eurozone debt turmoil have reached U.S. shores. It predicted U.S. economy to expand by 1.9 percent to 2.4 percent in 2012, lower than the range of 2.4 percent to 2.9 percent in its April projection.

Experts held that the U.S. employment situation has deteriorated since the FOMC's last meeting in April, putting pressure on FOMC members to take further action to boost economic growth.

"Like many other forecasters, the Federal Reserve was too optimistic early in the recovery about the pace of recovery," Federal Reserve chairman Ben Bernanke on Wednesday said at a press conference after the FOMC meeting, adding that the Fed had to add additional policy firepower.

"OPERATION TWIST" EXTENSION

The FOMC decided to extend the average maturity of its holdings of securities through the end of the year, an action largely in line with analysts' expectation.

"Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less," according to the statement.

The continuation of the maturity extension program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative, Bernanke explained.

The Fed announced on Sept. 21 last year the extension of average maturity of its 400-billion-dollar holdings of government securities to lower long-term borrowing costs and shore up the economic recovery, an unconventional monetary policy dubbed as " Operation Twist".

The Fed was selling 400 billion dollars of short-term Treasuries and replacing them with the same amount of longer-term government debt. The plan was poised to wrap up by June without the extension decision. The Fed would extend the program in buying 267 billion dollars longer-term bonds by using the proceeds from selling short-term debt through December.

Investors worried that the move might prove to be too modest to have real impact on the country's lending and spending activities against the background of near zero interest rates, but Bernanke defended the measure as a "substantive step".

The Fed reaffirmed its policy decision to keep the exceptionally low levels of federal funds rate, currently in the range of 0-0.25 percent, at least through late 2014 to support economic recovery.

Some economists held that a long period of historically-low interest rate since the end of 2008 has underpriced credit and increased risk taking, fueling asset bubbles in the global stock and commodity markets, but could not provide a strong boost to U.S. housing sector and business hiring.

QE3 IN SIGHT

The Fed was tiptoeing a fine line of avoiding under-shooting and over-shooting in its policy making. Fed's top officials have not decided that a new round of quantitative easing (QE) monetary policy, dubbed QE3, was warranted. QE3 would expand the Fed's holdings of assets.

However, against the backdrop of weak economic growth and job creation momentum, the Fed said Wednesday that it was "prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability".

"We are prepared to do what's necessary," if there is no further improvement in the labor market, Bernanke said.

The Fed forecast that the U.S. jobless rate might stand at 8.0 percent to 8.2 percent by the end of this year, higher than the range of 7.8 percent to 8.0 percent in its April projection.

Since the onset of the financial crisis, the Fed has completed two rounds of quantitative easing programs, known as QE1 and QE2. It has bought more than 2 trillion dollars of Treasury securities and mortgage-backed securities, expanding its balance sheet to around 2.9 trillion dollars and attracting sharp criticism both at home and abroad.

"Additional asset purchases would be among the things that we would certainly consider if we need to take additional measures to strengthen the economy," noted Bernanke, adding that QE1 and QE2 did have "significant effects" on asset prices and financial conditions.

Some of Bernanke's lieutenants including Fed's vice chairman Janet Yellen stressed in public in recent weeks that further monetary steps were needed to guard against an economic downturn.

However, Bernanke admitted earlier this month that the monetary policy was not "panacea", and the economy's performance over the medium and long term would also depend importantly on the course of the fiscal policy.

VietNamNet/Xinhuanet